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Section 54B- Is this allowed or is it a mistake in section??

Swapnil Jain (Finance - FP&A) (564 Points)

26 January 2011

Hello,

As per Section 54B if X transfer a urban agricultural land and attracts a LTCG of Rs 15 lakh. Now he purchases a new Rural agricultural land for Rs 20 lakh thus getting entire capital gain exempt. Now as per section 54B if new agricultural land is transferred before 3 year then Cost of acquisition will be reduced by amount of exemption. But in this case if X sells land the very next day, then how will this section apply? As sale of rural agricultural land attract no capital gain whether LTCG or STCG. Is this kind of tax saving allowed?

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U S Sharma (glidor@gmail.com) (21056 Points)
Replied 27 January 2011

Originally posted by : Swapnil Jain
	Hello, As per Section 54B if X transfer a urban agricultural land and attracts a LTCG of Rs 15 lakh. Now he purchases a new Rural agricultural land for Rs 20 lakh thus getting entire capital gain exempt. Now as per section 54B if new agricultural land is transferred before 3 year then Cost of acquisition will be reduced by amount of exemption. But in this case if X sells land the very next day, then how will this section apply? As sale of rural agricultural land attract no capital gain whether LTCG or STCG. Is this kind of tax saving allowed?

here the capital gain exemption is related to urban only, so the new property is locked for 3 years to keep the exemption in force,

when the assessee sells the new property after 3 years , then he can say no stcg or ltcg, as per prevailing rules, but if he disposes the same within 3 years then the exemption availed under 54B will go rolled back,