Capital Gains Guide · FY 2025-26

Section 54B —
Agricultural Land Exemption

How an individual or HUF can save capital gains tax on the sale of agricultural land by reinvesting in new farmland — the 2-year rules, the CGAS deposit, the 3-year lock-in and a worked example.

Updated for AY 2026-27 CA Reviewed Individual & HUF Guide

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2 yrsPrior agri use

2 yrsReinvestment window

3 yrsNew-land lock-in

Ind/HUFEligible claimants

Quick Answer

Section 54B lets an individual or HUF claim exemption on capital gains from selling agricultural land that is a capital asset, by reinvesting the gain in another agricultural land within 2 years of sale. The land sold must have been used for agriculture for at least 2 years before the transfer. Unspent gain must be parked in a Capital Gains Account Scheme (CGAS) before the ITR due date, and the new land cannot be sold for 3 years or the exemption reverses.

Claimant Ind / HUF

Reinvest in Agri land · 2 yrs

Lock-in 3 years

Applies to LTCG & STCG

Eligibility

Section 54B — Conditions to Satisfy

Every condition below must be met. Miss one — for example the 2-year prior use — and the exemption is denied on scrutiny.

Condition	Requirement	Met?
Who can claim	Individual or HUF only — not company, firm or LLP	Ind / HUF
Asset sold	Agricultural land that is a capital asset (urban agri land, or rural land within municipal limits)	Capital asset
Prior agricultural use	Land used for agriculture by the assessee, or his/her parents (HUF: any member) for 2 years immediately before sale	2 years
New asset	Another agricultural land (urban or rural) purchased in India	Agri land
Reinvestment window	Purchase within 2 years from the date of transfer	2 years
Lock-in on new land	Do not sell the new land within 3 years of purchase	3-yr lock-in

Rural agricultural land beyond the specified distance from municipal limits is NOT a capital asset — its sale attracts no capital gains tax, so Section 54B is not needed.

Rural agricultural land is not a capital asset

If you sell genuine rural agricultural land (beyond the notified distance from municipal limits), there is no capital gains tax at all and Section 54B is irrelevant. Section 54B only helps when the land sold IS a capital asset — typically urban agricultural land or rural land falling within municipal limits.

Worked example

How the 54B Exemption is Calculated

The exemption is the lower of (a) the capital gain, or (b) the cost of the new agricultural land. Invest less than the full gain and the balance stays taxable.

Full reinvestment

LTCG on old land₹40,00,000

New agri land cost₹42,00,000

Exemption (lower of two)₹40,00,000

Taxable LTCG₹0

Partial reinvestment

LTCG on old land₹40,00,000

New agri land cost₹25,00,000

Exemption (lower of two)₹25,00,000

Taxable LTCG₹15,00,000

Which rate applies to the taxable balance?

Section 54B covers both STCG and LTCG. Where the land was held over 24 months the gain is long-term: for transfers on or after 23 July 2024 LTCG on land is taxed at 12.5% without indexation (land acquired before 23 July 2024 may instead opt for 20% with indexation, whichever is lower). Short-term gain (holding of 24 months or less) is taxed at your slab rate.

Sold farmland and unsure how much to reinvest? Get your 54B position and tax computed.

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The deposit rule

Capital Gains Account Scheme (CGAS)

If you cannot buy the new agricultural land before the due date of filing your ITR for the year of sale, deposit the unutilised gain in a CGAS account with a designated bank before that due date and claim the exemption in your return.

Sell agri landCapital gain arises

→

Buy new land?If not before ITR due date

→

Deposit in CGASBefore ITR due date

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Use within 2 yrsBuy agri land or gain is taxed

Unused CGAS balance becomes taxable

Any amount left unutilised in the CGAS account after 2 years from the date of sale is taxed as capital gains in the year the 2-year window expires. Track the deadline — banks do not auto-release or warn you.

Choose the right section

Section 54B vs 54 vs 54F vs 54EC

Section	Asset sold	New asset	Who can claim	Time limit
54B	Agricultural land (capital asset)	Agricultural land	Individual / HUF	Purchase within 2 years
54	Residential house (LTCG)	1 residential house	Individual / HUF	Buy: 1 yr before / 2 yrs after; construct: 3 yrs
54F	Any long-term asset (except house)	1 residential house	Individual / HUF	Same as Section 54
54EC	Land or building (LTCG)	NHAI / REC / PFC / IRFC bonds	Any assessee	Invest within 6 months; max ₹50 lakh

54EC bonds carry a 5-year lock-in and a ₹50 lakh annual cap. For farmland specifically, 54B is usually the cleanest route if you intend to buy more land.

Section 54B fits when

You are an individual or HUF selling agricultural land
The land was farmed for 2+ years before sale
You plan to buy more agricultural land within 2 years
You want the full gain (STCG or LTCG) sheltered

Look elsewhere when

The seller is a company, firm or LLP — 54B is barred
You cannot show 2 years of agricultural use
You would rather invest in bonds — consider 54EC
You may need to sell the new land within 3 years

Government sourcesSection 54B, Income-tax Act 1961: incometax.gov.in · Capital Gains Account Scheme, 1988 (CGAS) · LTCG on land 12.5% w/o indexation from 23 Jul 2024 (Finance (No.2) Act 2024); pre-23-Jul-2024 land: 20% with-indexation option · Income-tax Act 2025 renumbers s.54B from AY 2026-27; substance retained

Section 54B — Frequently Asked Questions

Basics

What is Section 54B of the Income Tax Act?

Section 54B gives an individual or HUF an exemption from capital gains tax when they sell agricultural land that is a capital asset and reinvest the gain in another agricultural land within 2 years. The land sold must have been used for agricultural purposes for at least 2 years immediately before the sale.

Who can claim the Section 54B exemption?

Only an individual or a Hindu Undivided Family (HUF). Companies, partnership firms and LLPs cannot claim Section 54B, even if they sell agricultural land that is a capital asset.

Does Section 54B apply to both LTCG and STCG?

Yes. Unlike Sections 54 and 54F which apply only to long-term gains, Section 54B covers both short-term and long-term capital gains on the sale of agricultural land, provided all other conditions are met.

Is Section 54B still available after the Income-tax Act, 2025?

Yes. The relief continues under the new Income-tax Act, 2025 from AY 2026-27 — the section has been renumbered but the substance (individual/HUF, 2-year use, 2-year reinvestment, 3-year lock-in) is retained. The familiar reference "Section 54B" still describes this exemption.

Conditions

What is the 2-year agricultural use requirement and how do I prove it?

The land must have been used for agricultural purposes for the 2 years immediately before sale. Proof includes land records (Khasra/Patta/7-12 extract) showing agricultural classification, Girdawari crop records, receipts for seeds/fertiliser/labour, pump-set electricity bills, crop insurance and agricultural income shown in earlier ITRs. The Assessing Officer can ask for any of these on scrutiny.

Does Section 54B apply to both rural and urban agricultural land?

Section 54B applies when the land SOLD is a capital asset — typically urban agricultural land or rural land within municipal limits. The NEW land purchased can be either urban or rural agricultural land. Genuine rural agricultural land beyond the notified distance is not a capital asset, so its sale has no capital gains tax and 54B is not needed.

Can I buy the new agricultural land in someone else's name?

To be safe, buy the new land in the name of the same assessee who sold the original land and claimed the gain. Purchases in a spouse's or child's name are frequently litigated and the exemption is often denied. Keep the ownership consistent to avoid dispute.

What is the 3-year lock-in on the new agricultural land?

If you sell the newly purchased agricultural land within 3 years of buying it, the earlier Section 54B exemption is withdrawn: the cost of the new land is reduced by the exempted amount (effectively taken as nil to that extent), increasing the capital gain on that later sale.

Calculation

How is the Section 54B exemption amount calculated?

The exemption equals the lower of (a) the capital gain on the old land, or (b) the cost of the new agricultural land. If you reinvest the full gain, the entire gain is exempt; if you reinvest less, the balance stays taxable.

What happens if I reinvest only part of the capital gain?

You get a proportionate exemption equal to what you invest. For example, on an LTCG of ₹40 lakh with a new land costing ₹25 lakh, ₹25 lakh is exempt and ₹15 lakh remains taxable as LTCG.

At what rate is the taxable balance under Section 54B taxed?

The un-exempted balance is taxed like any capital gain on land. Long-term gain (holding over 24 months) on transfers from 23 July 2024 is taxed at 12.5% without indexation — land acquired before 23 July 2024 may instead opt for 20% with indexation, whichever is lower. Short-term gain (24 months or less) is taxed at your slab rate.

CGAS

What is the CGAS deadline for Section 54B?

If you cannot buy the new agricultural land before the ITR due date for the year of sale (typically 31 July, or 31 October if audited), deposit the unutilised gain in a Capital Gains Account Scheme account before that due date. The deposit must then be used to buy agricultural land within 2 years of the original sale.

What if I do not use the CGAS amount within 2 years?

Any amount left unutilised in the CGAS account after the 2-year reinvestment window is taxed as capital gains in the previous year in which the 2 years expire. You lose the exemption on the unspent portion.

Comparison

Section 54B vs 54EC — which is better for farmland?

Use Section 54B if you intend to buy more agricultural land — it can shelter the whole gain with no ₹50 lakh cap. Use Section 54EC (NHAI/REC/PFC/IRFC bonds, invest within 6 months, max ₹50 lakh, 5-year lock-in) if you prefer a passive bond investment over buying land. Both can be combined within limits.

Can I claim Section 54B and 54EC on the same sale?

Yes, where amounts permit. You may reinvest part of the gain in new agricultural land under 54B and part in 54EC bonds (subject to the ₹50 lakh 54EC cap), so long as the same amount is not claimed twice. A tax adviser can optimise the split.

Done-for-you

Related TaxClue Services

ITR Filing (Capital Gains)File ITR-2 with your 54B exemption and CGAS details correctly.Explore →Capital Gains ComputationCompute LTCG/STCG on land and the exact 54B exemption.Explore →Section 54EC AdvisoryCompare the bond route and plan a 54B + 54EC split.Explore →Income Tax CalculatorEstimate tax on the taxable balance after the exemption.Explore →

Next in this capital gains cluster

Section 54 — House Property Exemption Section 54F — Sale of Any Asset Section 54EC — Capital Gains Bonds LTCG Tax Guide ITR-2 Filing Guide Capital Gains Account Scheme

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Section 54B — Exemption Claimed the Right Way

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