When on the transfer of agricultural land, which was being used for agricultural purpose by the assessee or his parents ( HUF w.e.f. A.Y. 2013-2014) for a period of at least Two Years immediately preceding the year of a transfer and there occurs some capital gain and such capital gain is reinvested in the purchase of agricultural land within a period of 2 years from the date of such transfer, the amount of capital gain so invested shall be exempted from tax.
Exemption u/s 54B is available only to individuals and H. U.Fs.
Transfer of new agricultural land within 3 years
If the land, so purchased by reinvesting the capital gain, is transferred within a period of 3 years from the date of its purchase, the previously exempted capital gain will be taxable along with the new capital gain on the sale of such land, if any, in the current previous year.
Agricultural land situated in rural areas is not treated as capital asset and so capital gain arising from sale of agricultural land in rural areas is not chargeable to tax.
Amount deposited in capital gain deposit account Scheme
In case the amount of capital gain is not re-invested for the purchase of agricultural land upto the last date of filing of return of income u/s 139 then the amount of capital gain should be deposited in the capital gain deposit account scheme with a specified bank upto the last date of filing of return. The proof of deposit is required to be attached with the return of income of that year.
The amount deposited under this scheme must be utilized to purchase agricultural land within 2 years from the date of transfer of agricultural land. In case amount deposited is not utilized to purchase agricultural land within the stipulated period, than the amount which remains unutilized shall be treated as capital gain of the previous year in which the period of 2 years would expire.