Section 54B — Capital Gains Exemption on Agricultural Land

Updated: 3 June 2026 | Income-tax Act, 2025 | Applies to Tax Year 2026-27

Section 54B provides exemption from capital gains tax (both LTCG and STCG) when an individual or HUF sells agricultural land that is a capital asset, provided they purchase another agricultural land within 2 years from the date of sale. The land sold must have been used for agricultural purposes by the assessee or their parents (or karta/HUF members) for at least 2 years immediately before sale.

2 Years

Reinvestment window — purchase new agricultural land within 2 years of sale
Unused gain must be deposited in CGAS before ITR due date. Applies to both LTCG and STCG.

Key Conditions for Section 54B Exemption

All of the following conditions must be satisfied to claim the Section 54B exemption:

Condition	Detail
Who can claim	Only Individual or HUF (not companies, firms, or LLPs)
Asset sold	Agricultural land that is a capital asset (urban agricultural land or rural land within capital asset definition)
2-year use before sale	Land must have been used for agricultural purposes by the assessee or his/her parents (for individual) or by HUF member/karta
New asset purchased	Any agricultural land (urban or rural) purchased in India within 2 years from date of sale
Type of gain	Applies to both Short-Term Capital Gain (STCG) and Long-Term Capital Gain (LTCG)
Lock-in on new land	New agricultural land must not be sold within 3 years of purchase; if sold, exemption is reversed

How the Exemption is Calculated

The amount of exemption under Section 54B is the lower of: (a) the capital gain arising on sale of the agricultural land, or (b) the cost of the new agricultural land purchased.

Scenario	Capital Gain	Reinvestment	Exempt Amount	Taxable LTCG
Full reinvestment	₹40 lakh	₹40 lakh	₹40 lakh	Nil
Partial reinvestment	₹40 lakh	₹25 lakh	₹25 lakh	₹15 lakh
Over-reinvestment	₹40 lakh	₹55 lakh	₹40 lakh (capped at gain)	Nil

Capital Gains Account Scheme (CGAS)

If the new agricultural land is not purchased before the due date of filing ITR for the year of sale, the unutilised capital gain must be deposited in a Capital Gains Account Scheme (CGAS) account with a designated bank before the ITR due date. The amount deposited in CGAS must be used for purchasing agricultural land within the 2-year window. Failure to utilise the CGAS amount within the deadline results in the unspent balance being taxed as capital gains in the year of expiry.

Section 54B vs 54 vs 54F vs 54EC — Comparison

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 property (LTCG)	1 residential house	Individual / HUF	Buy: 1 yr before / 2 yrs after; Construct: 3 yrs
54F	Any long-term capital asset (except house)	1 residential house	Individual / HUF	Same as Sec 54
54EC	Land or building (LTCG)	Specified bonds (NHAI/REC)	Any assessee	Invest within 6 months; max ₹50 lakh

LTCG vs STCG — Which Rate Applies?

Section 54B is unique in that it applies to both LTCG and STCG. For agricultural land held for more than 2 years, capital gain is long-term; for 2 years or less, it is short-term. Without Section 54B, STCG is taxable at slab rates and LTCG at 20% with indexation. The 54B exemption wipes out the gain (to the extent reinvested) regardless of whether it is short-term or long-term.

Frequently Asked Questions

What is the difference between Section 54B exemption and the rural agricultural land exemption?

Rural agricultural land located beyond the specified distances from municipal limits is not a "capital asset" under the Income-tax Act, 2025 — so its sale does not attract capital gains tax at all. No exemption is needed. Section 54B, on the other hand, applies when you sell agricultural land that IS a capital asset (typically urban agricultural land or rural land within municipal limits) and want to claim an exemption on the resulting capital gain by reinvesting in another agricultural land. If you sell genuine rural agricultural land that is not a capital asset, Section 54B is irrelevant.

How do you prove the 2-year agricultural use requirement?

The assessee must show that the land was used for agricultural purposes for at least 2 years immediately before the date of sale. Acceptable proof includes land records (Khasra/Patta/7/12 extract) showing agricultural classification, Girdawari records confirming crops grown, receipts for seeds/fertilisers/agricultural labour, electricity bills for pump-sets, crop insurance records, and photographs with timestamps. Income from agricultural activity reported in previous ITRs also strengthens the claim. The AO can ask for any of these documents during scrutiny.

What is the Capital Gains Account Scheme (CGAS) deadline for Section 54B?

If you cannot purchase the new agricultural land before the due date of filing the ITR for the year in which the capital gain arose (typically 31 July or 31 October), you must deposit the unutilised capital gain amount in a Capital Gains Account Scheme (CGAS) bank account before that ITR due date. The deposited amount must be used to purchase agricultural land within 2 years from the date of sale of the original land. If the amount is not utilised within the deadline, the exemption is withdrawn and the unspent amount becomes taxable as capital gains in the year of expiry.

What happens if I reinvest only part of the capital gain under Section 54B?

Section 54B allows proportionate exemption. If you invest only a portion of the long-term capital gain, the exemption is limited to the amount actually invested. The remaining uninvested capital gain is taxable. For example, if your LTCG is ₹30 lakh and you purchase a new agricultural land for ₹20 lakh, you get an exemption of ₹20 lakh and the remaining ₹10 lakh is taxable as LTCG at the applicable rate.

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

Yes. Section 54B applies to the sale of agricultural land that is a capital asset — this can be urban agricultural land (within municipal limits) or rural agricultural land that qualifies as a capital asset. The key condition is that the land sold must have been used for agricultural purposes for at least 2 years. The new land purchased also must be agricultural land (no restriction on urban vs rural). However, note that the sale of new land within 3 years of purchase will result in reversal of the exemption.

Section 54EC Bonds Capital Gains Tax LTCG Tax Guide ITR-2 Filing Capital Gains Account Scheme

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