The process of filing income tax returns for the financial year 2024-25 has started and taxpayers are looking for ways to save tax. Most people in India have agricultural land, but many people do not know that selling such land can also be taxed. Know what is the whole case.
Tax on Agriculture Land Sell: The process of filing Income Tax Return (ITR) for the financial year 2024-25 (assessment year 2025-26) has started. Taxpayers are now looking for ways with the help of which they can save as much tax as possible. Most families in India have agricultural land, and it is generally believed that income from agriculture is tax free. But this is not entirely true. Actually, tax is also levied on selling agricultural land. If a person sells his agricultural land, then capital gains tax may be levied on it. But it depends on whether that land is in urban area or rural area.
Difference between rural and urban agricultural land
According to the Income Tax rules, rural agricultural land is not included in the definition of capital asset, so there is no capital gain tax on selling it. On the other hand, tax is levied on the profit made on selling urban agricultural land, whether it is short term or long term capital gain.
Can tax exemption be obtained on selling urban agricultural land?
Now the question is whether tax exemption can be obtained on selling urban agricultural land. The answer is yes. Tax exemption can be obtained in such a situation under Section 54B of the Income Tax Act. If you have sold your urban agricultural land and invest the amount of capital gain received from it in buying new agricultural land, then tax exemption can be obtained.
What are the conditions to get exemption?
- The agricultural land sold should have been used for agricultural purposes for at least 2 years before the sale.
- This use should have been done by the person himself, his parents or Hindu Undivided Family (HUF).
- It is mandatory to use the new land for agricultural purposes as well.
- Exemption can be available on both short term and long term capital gains.
What is the maximum exemption?
The maximum tax exemption available under Section 54B depends on the amount you have earned by selling agricultural land (i.e. capital gains tax) and the amount you have invested in a new agricultural land from that money. According to this section, the amount of exemption will be given as per the lesser of the two.
For example, if you earn a capital gain of Rs 10 lakh by selling agricultural land and invest Rs 8 lakh in new agricultural land, then you will get a tax exemption of only Rs 8 lakh. On the other hand, if you earn a capital gain of Rs 10 lakh and invest Rs 12 lakh in new agricultural land, even then the maximum exemption will be Rs 10 lakh only. If you have not bought new land immediately, then you can also claim exemption by depositing this money in Capital Gains Deposit Account Scheme.
