ITR: Section 54B of the Income Tax Act, 1961

Section 54B of the Income Tax Act, 1961

Section 54B provides tax exemption on capital gains arising from the transfer of agricultural land, provided the gains are reinvested in purchasing new agricultural land. Here are the key details about Section 54B:

Eligibility:

• Eligible Assessee: Individuals and Hindu Undivided Families (HUFs).
• Asset Sold: Agricultural land used by the individual or his/her parents or a HUF for agricultural purposes for at least 2 years immediately preceding the date of transfer.
• Asset Purchased: New agricultural land.

Conditions:

1. Purchase: The new agricultural land must be purchased within 2 years from the date of transfer of the original agricultural land.
2. Holding Period: The new agricultural land must be held for at least 3 years from the date of its purchase.

Amount of Exemption:

• The exemption amount is the lesser of the capital gains amount or the cost of the new agricultural land.
• If the entire capital gains amount is not utilized for the purchase of the new agricultural land, the unutilized amount will be taxed as capital gains.

Capital Gains Account Scheme:

• If the capital gains are not fully utilized by the due date of filing the income tax return, the unutilized amount must be deposited in a Capital Gains Account Scheme (CGAS) in a bank.
• The deposited amount must be used within the specified period (2 years) for the purchase of the new agricultural land.

How to Claim Deduction Under Section 54B in ITR Filing

Steps to Claim Deduction in ITR:

1. Calculate Capital Gains:
   • Determine the full value of consideration received from the sale of the original agricultural land.
   • Deduct expenses incurred exclusively in connection with such transfer.
   • Subtract the cost of acquisition and cost of improvement (if any).
2. Utilize Capital Gains:
   • Purchase new agricultural land within the specified time frame.
   • Deposit the unutilized capital gains in CGAS if not utilized by the due date of filing the return.
3. Filing ITR:
   • Select the appropriate ITR form (e.g., ITR-2 for individuals with capital gains).
   • Fill in the details of the original agricultural land sold and the new agricultural land purchased under the ‘Capital Gains’ section.
   • Mention the amount of capital gains and the amount claimed as deduction under Section 54B.
   • If the entire capital gains amount is not utilized, mention the amount deposited in CGAS.

Example:

Let’s assume you sold agricultural land for ₹30,00,000 and the cost of acquisition is ₹10,00,000. The capital gain is ₹20,00,000. You purchased new agricultural land for ₹15,00,000 within the specified time frame.

• Capital Gains: ₹20,00,000
• Amount Utilized for New Agricultural Land: ₹15,00,000
• Amount Deposited in CGAS: ₹5,00,000

You can claim a deduction of ₹15,00,000 under Section 54B, and the remaining ₹5,00,000 will be taxable as capital gains.

Filing Details in ITR:

1. Schedule CG (Capital Gains):
   • Enter the details of the agricultural land sold.
   • Calculate and enter the capital gain.
   • Provide details of the new agricultural land purchased.
   • Enter the amount of deduction claimed under Section 54B.
2. Schedule CGAS:
   • If applicable, provide details of the amount deposited in the Capital Gains Account Scheme.

Summary:

• Section 54B allows tax exemption on capital gains from the sale of agricultural land if reinvested in new agricultural land.
• Eligibility criteria, conditions, and the amount of exemption should be carefully considered.
• The unutilized amount should be deposited in CGAS if not utilized by the due date of filing the return.
• Proper details must be filled in the ITR form to claim the deduction.