Explain section 54B with regard to gain on sale of agricultural land in India.

Exemption of Capital Gain on Transfer of Agricultural Land [Sec.540]: Exemption of capital gain arising from the transfer of capital asset being agricultural land (short-term or long-term situated in an urban area shall be OIL available only to an individual or HUF, who is the owner of such land subject to conditions as follows:

  1. The agricultural land so transferred was used by the assesses or his parents or HUF for the purpose of agriculture at least for two years immediately before the date of transfer.
  2. The assesses has purchased another agricultural land (urban or rural) within two years from the date of transfer.

Quantum of Exemption:

If the capital gains arising from the transfer of agricultural land is invested in purchasing another agricultural land within two years from the date of transfer of original agricultural land the whole of the capital gains shall be exempt, lithe cost of new agricultural land is equal to or more than the amount of capital gain. If the cost of new agricultural land is less than the capital gain, the capital gain to the extent of the cost of new agricultural land shall be exempt.

If the amount of capital gain is not utilized in acquiring a new agricultural land by due date of filing of return of income u/s 139(1), it shall be deposited by him in the capital gain Account Scheme and shall be utilized in accordance with the scheme.

The amount utilized in acquiring the agricultural land together with the amount deposited in capital gain account scheme shall be exempt from tax. Withdrawal of Exemption. The new agricultural land must not be transferred within a period of three years from the date of its purchase. Otherwise, the capital gain on the transfer of new agricultural land along with the capital gain exempted earlier at the time of its purchase, shall the chargeable to tax as short-term capital gains.

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