Section 54F Exemption: Agricultural Land Sale

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Quick Summary

This discussion explores claiming exemption under Section 54F of the Income Tax Act following the sale of agricultural land. It highlights that if the agricultural land is considered a capital asset, capital gains tax may apply based on the market value (Section 50C). The calculation for Section 54F exemption should ideally use the higher market value. However, if the land is in a rural area, it's not a capital asset, thus avoiding capital gains tax. The thread also touches upon tax liability, rebates, and seeks case law for clarification.

Tara Jain

Tara Jain (Querist)

15 June 2021 Mr. A sold an agricultural Land at Rs. 550000.00 while its Market Value was Rs. 985400.00. Mr. A invested the consideration received Rs. 550000 for purchase of residential house. How will the exemption u/s 54F claimed. The land was purchased at Rs. 51000 in F.y. 2013-14.

Ganeshbabu K

Ganeshbabu K (Expert)

16 June 2021 as explained above entire net consideration received on sale of Agriculture land, invested completely in purchase of residential property entire long term capital gain can be claimed as exemption under section 54F

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Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

16 June 2021 If the land is a capital asset per section 2(14) capital gains attracts in this case for which sale consideration has to be Rs.9,85,400 per section 50C. Like wise for 54F calculation sale consideration has to be Rs. 9,85,400 ,to be on the safer side, since law is not clear on this issue. If calculation is done as above, tax liability will be 30,914 assuming Mr. A has no other income. He can claim rebate Rs. 12,500 per section 87A . Thus the tax payable ,along with cess Rs.737 and interest per section 234B Rs. 573 ,comes to Rs. 19,724.

CMA Poornima Madhava

CMA Poornima Madhava (Expert)

16 June 2021 Further, if the agricultural land is situated in rural area, it is not a capital asset as per sec 2(14) and hence no tax liability on capital gain.

Tara Jain

Tara Jain (Querist)

18 June 2021 Mr. Ganeshbabu K do you have any case law regarding your view if you have, could you please share this.

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