What is Section 54B of the Income Tax Act?

Section 54B of the Income Tax Act provides a capital gains exemption when an individual or HUF transfers eligible agricultural land and purchases new agricultural land. The taxpayer must use the transferred land for agricultural purposes during the prescribed period before claiming the exemption. The purchase of new land must happen within the specified time limit.

Is the Section 54B exemption available on rural agricultural land?

Section 54B mainly applies to agricultural land that qualifies as a capital asset. Rural agricultural land generally does not qualify as a capital asset under income tax laws. Therefore, its transfer usually does not create taxable capital gains requiring exemption under Section 54B.

Can the Section 54B exemption be claimed on urban agricultural land?

Yes, taxpayers can claim a Section 54B exemption on eligible urban agricultural land. The taxpayer must prove that they or their parents used the land for agricultural purposes during the two years before transfer. The land must also qualify as a taxable capital asset under income tax provisions.

Can short-term capital gains qualify for exemption under Section 54B?

Yes, Section 54B allows exemption on both short-term and long-term capital gains. The taxpayer does not need to hold the agricultural land for any minimum period. However, the land must satisfy the agricultural usage condition for two years before the transfer.

What is the time limit for purchasing new agricultural land under Section 54B?

The taxpayer must purchase new agricultural land within two years from the date of transfer. Section 54B does not allow the construction of agricultural land for claiming exemption. The taxpayer must complete the purchase within the prescribed period to retain the benefit.

Can I claim the Section 54B exemption if I have not purchased new agricultural land before filing my return?

Yes, taxpayers can claim the exemption by depositing the unutilized capital gain in a Capital Gains Account Scheme (CGAS) account under the Capital Gains Accounts Scheme,

The taxpayer must deposit the amount with an authorized bank before the due date for filing the return under Section 139(1). The taxpayer must later use these funds to purchase new agricultural land within the prescribed time limit. 8. How much exemption can I claim under Section 54B?

The exemption under Section 54B equals the lower of the capital gain from the original agricultural land or the cost of new agricultural land purchased. If the taxpayer invests the entire capital gain, the entire gain becomes exempt. The remaining amount stays taxable if the investment is lower.

Can the Section 54B exemption be claimed for land purchased after selling agricultural land?

Yes, taxpayers can claim the Section 54B exemption when they purchase new agricultural land after transferring the original land. The purchase must happen within two years of the transfer date. The taxpayer must also satisfy all other conditions prescribed under the provision.

What happens if the taxpayer sells new agricultural land within 3 years?

If the taxpayer transfers the new agricultural land within 3 years of purchase, the earlier Section 54B exemption becomes taxable. The taxpayer must reduce the cost of acquisition by the exempted capital gain amount while calculating capital gains on the subsequent transfer.

Can an NRI claim exemption under Section 54B?

Yes, an NRI can claim exemption under Section 54B if they qualify as an individual and satisfy all the prescribed conditions. The taxpayer must transfer eligible agricultural land used for agricultural purposes and purchase new agricultural land within the specified time limit to claim the exemption. The taxpayer should also review their residential status and other applicable provisions of the Income Tax Act before determining their tax liability.

Can the new agricultural land be purchased in the name of a spouse under Section 54B?

Section 54B requires the taxpayer to purchase new agricultural land for claiming exemption. Courts have taken different views depending on the facts of each case. However, taxpayers should purchase the new land in their own name to avoid disputes regarding eligibility. Specific circumstances may require professional review.

Can I claim the Section 54B exemption more than once?

Yes, a taxpayer can claim an exemption under Section 54B in multiple years if each transaction independently satisfies the conditions. The taxpayer must transfer eligible agricultural land and reinvest the capital gains according to the requirements of the provision for every claim.

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Income Tax Taxation

Section 54B of Income Tax Act – Capital Gains Exemption on Agricultural Land

Q: Who can claim exemption under Section 54B?

Individuals and Hindu Undivided Families (HUFs) can claim exemption under Section 54B of the Income Tax Act. An individual taxpayer or HUF must transfer eligible agricultural land and satisfy the required conditions. Companies, firms, LLPs, and other entities cannot claim this capital gains exemption.

Joel Dsouza

Updated:Aug 3, 2026

10 min read

Section 54B of the Income Tax Act, 1961, provides a capital gains exemption when an individual or HUF transfers eligible agricultural land. The taxpayer must purchase another agricultural land within the specified period to claim this exemption.

The provision allows agricultural landholders to reduce their capital gains tax liability when they reinvest the sale proceeds in new agricultural land. It applies only when the taxpayer fulfills the conditions prescribed under Section 54B.

This guide explains the applicability of Section 54B, eligible taxpayers, qualifying agricultural land, exemption amount, purchase timeline, Capital Gains Account Scheme (CGAS) rules, and comparisons with Sections 54 and Section 54F.

Who Can Claim Exemption Under Section 54B of the Income Tax Act?

The capital gains exemption under Section 54B is available to the following categories of taxpayers:

Individuals: Any individual taxpayer, whether salaried, self-employed, or engaged in farming, who sells agricultural land used for agriculture can claim this exemption.
HUFs: A Hindu Undivided Family can claim the Section 54B exemption if it transfers agricultural land that was used for agricultural activities by the HUF or any of its members before the transfer.

Companies, firms, LLPs, and other entities are not eligible to claim the exemption under Section 54B. The provision explicitly limits the benefit to individuals and HUFs. This scope distinguishes Section 54B from some other capital gains exemption sections that have broader applicability.

What Type of Agricultural Land Qualifies Under Section 54B?

The agricultural land transferred by the taxpayer must satisfy specific conditions to claim the exemption under Section 54B:

The taxpayer or their parents (in the case of an individual) must have used the land for agricultural purposes during the two years immediately preceding the date of transfer.
In the case of an HUF, any member of the HUF must have used the land for agricultural purposes during the two years immediately before the transfer.
Section 54B applies only to agricultural land that qualifies as a capital asset. Rural agricultural land is generally not treated as a capital asset under the Income Tax Act, and its transfer does not attract capital gains tax. Therefore, Section 54B mainly applies to urban agricultural land.
Agricultural land is treated as urban agricultural land if it falls within the specified distance from municipal limits based on population:
- Within 2 km if the population is more than 10,000 but up to 1,00,000.
- Within 6 km if the population is more than 1,00,000 but up to 10,00,000.
- Within 8 km if the population is more than 10,00,000.
The original agricultural land can be either a short-term or long-term capital asset. Section 54B does not prescribe any minimum holding period, provided the two-year agricultural usage condition is satisfied.
Section 54B allows exemption on capital gains from both short-term and long-term transfers of eligible agricultural land, subject to fulfillment of the prescribed conditions.

Amount of Exemption Available Under Section 54B

The exemption under Section 54B equals the lower of the following amounts:

The capital gain arising from the transfer of the original agricultural land.
The cost of the new agricultural land purchased within the prescribed time limit.

If the cost of the new agricultural land equals or exceeds the capital gain, the entire capital gain qualifies for exemption. If the cost of the new land is lower than the capital gain, the exemption is limited to the amount invested, and the remaining capital gain becomes taxable.

For short-term capital gains, tax applies at the applicable income tax slab rates. For long-term capital gains, the applicable tax rate depends on the date of acquisition and the provisions in force at the time of transfer. Resident individuals and HUFs may have the option to choose between the applicable tax regimes in eligible cases.

Time Limit for Purchase of New Agricultural Land Under Section 54B

Section 54B allows the exemption only if the taxpayer purchases new agricultural land within two years from the date of transfer of the original agricultural land. Unlike Section 54, this provision does not permit investment in the construction of agricultural land.

Only the purchase of agricultural land qualifies for the exemption. In cases of compulsory acquisition, the 2-year period is counted from the date of receipt of compensation instead of the date of transfer.

Capital Gains Account Scheme (CGAS) Deposit Under Section 54B

If the taxpayer does not purchase new agricultural land before the due date for filing the income tax return under Section 139(1), they must deposit the unutilized capital gain in a CGAS account with an authorized bank. The taxpayer must complete this deposit before the due date to claim the exemption under Section 54B.

The amount invested in new agricultural land, along with the amount deposited in the CGAS account, qualifies as the cost of the new agricultural land for claiming the exemption. The taxpayer must use the deposited amount to purchase new agricultural land within two years from the date of transfer. Any unutilized amount after this period becomes taxable as capital gains in the year when the two-year period expires.

Section 54B Exemption with Practical Example

Mr. Shaam, a farmer, sells his agricultural land situated in an urban area in Maharashtra in June 2025 for ₹40 lakh. He purchased the land in June 2020 for ₹12 lakh. Since he acquired the land before 23 July 2024, he can choose the tax regime that results in lower tax liability.

The exemption under Section 54B is calculated as follows:

Sale consideration: ₹40 lakh
Indexed cost of acquisition (illustrative based on applicable CII): ₹16 lakh
Long-term capital gain: ₹24 lakh
Cost of new agricultural land purchased in March 2026: ₹20 lakh
Exemption under Section 54B: Lower of ₹24 lakh (capital gain) or ₹20 lakh (investment), therefore ₹20 lakh
Taxable long-term capital gain: ₹4 lakh
Tax payable: ₹80,000 at 20% with indexation (excluding applicable surcharge and Health & Education Cess).

This example assumes Mr. Shaam opts for the indexed tax regime. The applicable tax treatment depends on the date of acquisition and the options available under the law:

For transfers on or after 23 July 2024, long-term capital gains on immovable property, including urban agricultural land, are taxed at 12.5% without indexation.
For assets acquired before 23 July 2024, resident individuals and HUFs can choose between 20% tax with indexation or 12.5% tax without indexation, whichever results in lower tax liability.

Lock-In Period and Restrictions on the New Agricultural Land

The taxpayer must not sell or transfer the new agricultural land purchased under Section 54B within 3 years from the date of purchase. If the taxpayer transfers the new land within this period, the earlier exemption claimed under Section 54B will be withdrawn.

For calculating capital gains on the subsequent transfer, the taxpayer must reduce the cost of acquisition of the new agricultural land by the amount of capital gain exempted under Section 54B. This increases the taxable capital gain arising from the subsequent transfer.

Section 54 vs Section 54B vs Section 54F vs Section 54EC vs Section 54GB

The table below highlights the key differences between important capital gains exemption provisions under the Income Tax Act:

Factor	Section 54	Section 54B	Section 54F	Section 54EC	Section 54GB
Asset sold	Residential house property	Agricultural land used for agricultural purposes and qualifying as a capital asset	Any long-term capital asset other than a residential house	Land or building or both	Long-term residential property (house or plot of land)
Who can claim?	Individuals and HUFs	Individuals and HUFs	Individuals and HUFs	Any assessee	Individuals and HUFs
Capital gains covered	Long-term capital gains	Short-term and long-term capital gains	Long-term capital gains	Long-term capital gains	Long-term capital gains
Reinvestment in	New residential house property in India	New agricultural land	New residential house property in India	Specified bonds issued by eligible institutions such as NHAI or REC	Equity shares of an eligible company or eligible start-up, subject to prescribed conditions
Time limit	Purchase within 2 years or construction within 3 years	Purchase within 2 years	Purchase within 2 years or construction within 3 years	Investment within 6 months from the date of transfer	Investment in eligible company shares before the due date of filing return under Section 139(1), with the company required to acquire specified assets within the prescribed period
Lock-in period on new asset	3 years	3 years	3 years	5 years	Subject to prescribed conditions

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Joel Dsouza

Joel Dsouza is a Chartered Accountant (CA) and compliance expert with over 7 years of hands-on experience in company registration, tax structuring, GST, ROC filings, and MCA compliance. As a qualified member of the Institute of Chartered Accountants of India (ICAI) and Co-Founder at RegisterKaro, he has personally advised more than 1,000 startups and SMEs across India, helping founders navigate incorporation, regulatory frameworks, and financial planning from Day 1. With deep expertise across all three levels of Finance and Portfolio Management, Joel is committed to promoting financial literacy and simplifying India's startup ecosystem through clear, actionable guidance that entrepreneurs can act on immediately.