SECTION 54B
Applicability:- Individual [ STCA, LTCA ]
Provision:- Sec 54 B provides exemption from capital gains arising from transfer of capital asset(LTCA or STCA) being agricultural land in urban India(in rural India is not a capital asset hence not taxable), if the assessee purchases another agricultural land (in rural or urban India)within 2 years from the date of transfer of original agricultural land.
Exemption Available: Cost of new agricultural land subject to CG.
The agricultural land must be used by the assessee or his parents for agricultural purposes for a period of 2 years immediately preceding the date of transfer. Therefore to claim exemption 2008-09 must have been used for agricultural purpose since 2006-07).
CGDS SCHEME
In order to claim exemption the assessee may either purchase agricultural land within return filing date or deposit the amount unutilized in Capital Gain Deposit Scheme. Any amount remaining unutilized in CGDS on expiry of 2 years (in 54 it is 3years) from date of transfer of original asset would be taxable CG could be short term or long term depending the original exemption was against LTCG or STCG.
Transfer within 3 years-COA to be reduced by exemption claimed earlier
If the new agricultural land is sold within 3 years from the date of its purchase, then COA of new agricultural land shall be reduced by amount exempted earlier. CG shall be always short term and tax will be calculated under normal provision since no STT levied. Deduction under chapter VI A available.
Since exemption is available for both STCA and LTCA it is possible that after selling the new agricultural land within 3 years the assessee may again purchase another agricultural land within 2 years to claim exemption on STCG.(Not possible u/s 54 as only LTCG included). For this again CGDS will be applicable.
If new agricultural land is purchased in rural India and transferred within 3 years, then too exemption u/s 54 cannot be withdrawn since agricultural land in rural India is not a capital asset and therefore no CG on it.
Provision is violated only if transferred. If converted or mortgaged, exemption shall be available.