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SECTION 54B OF INCOME TAX ACT, 1961

Today we are discussing on SECTION 54B OF INCOME TAX ACT, 1961. section 54B is realated to exemption available on capital gain in case of transfer of land use for agriculture purpose.

MEANING OF SECTION 54B OF INCOME TAX ACT, 1961

According to Section 54B of I. T. Act, 1961: any capital gain arising on the transfer of land used for agriculture purpose by assessee or his parents during a period of 2 preceding years from the date of transfer & the assesee has purchased a new land for an agriculture purpose within a period of 2 years from the date of transfer then in such case the capital gain arising on the date of transfer shall be dealt by following provisions:

If Capital gain exceeds the cost of land new purchased then difference between the capital gain & cost of land should charged under section 45 under the head income from capital gain.

If the new land is sold within a period of 3 years from the date of purchase then for purpose of calculating capital gain on such transfer the cost of land should be taken as Nil.

 EXAMPLE OF  SECTION 54B OF INCOME TAX ACT, 1961

An Individual asseesee sold his land For Rs. 5,00,000/- which he used for agriculture purpose during a period of 2 preceding years f. The capital gain on such sale is Rs. 4,00,000/-.

& he purchased a new land for Rs. 3,00,000.

Then in such case the capital gain charged for  the year is = 4,00,000-3,00,000= Rs. 1,00,000.

(a) If the new land is also sold within a period of 3 years from the date of its purchase then cost of land should be taken as Nil.

(b)If the Capital gain doesn’t exceeds or equals the Cost of land newly purchased then no capital gain should be charged under section 45 under the head income from capital gain.

(C) If the new land is also sold within a period of 3 years from the date of its purchase then for the purpose of calculating capital gain the cost of land should be reduced by the amount of capital gain.

 

For e.g. An Individual asseesee sold his land for Rs. 5,00,000/- which he used for agriculture purpose during a period of 2 preceding years . The capital gain on such sale is Rs. 4,00,000/-.& he purchased a new land for Rs. 6,00,000.

Then in such case there is no capital gain arise. If the new land is also sold within a period of 3 years from the date of its purchase for Rs. 8,00,000/- then cost of land should be taken as Rs. 2,00,000/- (Rs. 6,00,000-Rs. 4,00,000).

The amount of capital gain which is not utilised for the purpose of purchase of new land before the due date of filling of income tax return u/s. 139(1) then such unutilised amount should be deposited in a bank or institutions which the central government notified in this behalf.

If the amount so deposited is not utilised for the purpose of purchase of land within a period of time then such amount shall be charged u/s. 45 under the head capital gain in the previous year after the expiry of two year given for such utilisation & an assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

For e.g. the capital gain on transfer of agriculture land is Rs. 10,00,000 on 1st April, 2013. The money utilised before the due date of filing return u/s. 139(1) is Rs. 5,00,000/-.

The Assessee should deposit the unutilised amount of Rs. 5,00,000/- before due date of filing  Income tax return u/s. 139(1) i.e. 31st July, 2014.

If this deposited money is not utilised for purchase of land on or before 31st March, 2015 then such unutilized money should be charged u/s. 45 under the head Income from Capital gain in Previous year 2014-15.

 

 

 

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One comment

  1. Mr A sold one agricultural land in Gujarat which complies all the conditions of 54B of the Income Tax Act and purchased another agricultural land within due time. However, the newly purchased agricultural land is an agricultural land as per revenue record but not used for agricultural purpose since then.

    Whether AO can disallowed the claim of 54B being new purchased land is actually not used for agricultural purpose ?

    Pl. note that section 54B is silent on new agricultural land.

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