Section 54b capital gain

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trishup (Querist)
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29 January 2016 in section 54b if i sell an agricultural land in urban area and again buy an agricultural land in rural area,i will get the benefit of exemption.But my question is that can i sell that agricultural land in rural area within three years and will my earlier exemption be cancelled? But as agricultural land in rural area is exempt so how does it matter if i sell it within 3 years?

CA CMA CS Ram Pavan Kumar Melam

CA CMA CS Ram Pavan Kumar Melam (Expert)
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30 January 2016 Capital gain on sale of agricultural land (sale of non-rural agricultural land alone liable for capital gains tax) can be invested in any other land used for agricultural purposes (i.e. either non-rural or rural). Rural agricultural land is not a capital asset at all as per section 2(14). On its sale there is no capital gain.

But after taking the benefit of section 54B on sale of non-rural agricultural land by investing in a new asset being rural agricultural land, and if such new asset is transferred within 3 years, the provisions of section 54B will be applicable. In my view we cannot take a plea that the rural agricultural land is not a capital asset at all. Even then there is no tax effect on transfer within 3 years in case of rural agricultural land

CA CMA CS Ram Pavan Kumar Melam

CA CMA CS Ram Pavan Kumar Melam (Expert)
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30 January 2016 The existing provisions of section 54B are ineffectual to bring such transfer of agricultural land within 3 years to tax. The assessee may, to take the capital gain exemption u/s 54B on sale of non-rural agricultural land, invest in rural agricultural land, held for one day, take exemption and sell on next day.

For example Mr. X purchased a non-rural agricultural land on 01-06-1979 for Rs. 60,000 (FMV on 01-04-1981 Rs. 100,000). He sold that land on 01-01-2015 for Rs. 15,00,000.

Computation of capital gain is as below:
(Period of holding: 01-06-1979 to 31-12-2014: > 36 months: Long term capital asset)
Full value of consideration (Rs.) 15,00,000
Less: ICOA 1,00,000 X 1024/100 10,24,000
Capital gain (LTCA) 4,76,000
Investment in rural agricultural land 15,00,000
(Full consideration invested on 20-01-2015)
Hence, the total capital gain of Rs. 476,000 exempted. Though it is sufficient to invest Rs. 476,000 the assessee Mr. X invested full consideration of Rs. 15,00,000.

He sold the rural agricultural land on 29-01-2016 for Rs. 25,00,000. As per the existing provisions of section 54B, the capital gain arising from transfer of this new asset being rural agricultural land, the computation will be as below:

Computation of capital gains on sale of rural agricultural land (capital receipt)
Period of holding: 20-01-2015 to 28-01-2016: LTCA / STCA not applicable for rural agricultural land
Full value of consideration 25,00,000
Less: COA 15,00,000
Less: Capital gains 4,76,000 10,24,000
(previously claimed exemption)
Capital gain 14,76,000

Though the result of sale of capital asset was gain of Rs. 14,76,000, the same cannot be taxed as the rural agricultural land is capital asset but excluded capital asset u/s 2(14).

trishup

trishup (Querist)
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30 January 2016 thanx a lot sir it was very very useful

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