Section 54B — Section 54B — Capital gain on transfer of land used for agricultural purposes not to be charge | ITA 1961

Function in the statutory architecture

Statutory text — Income-tax Act, 1961

CHAPTER IV

COMPUTATION OF TOTAL INCOME / E. CAPITAL GAINS

Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.

54B. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter

referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain

shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.

(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset

before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then,—

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in

which the period of two years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

Capital gain on transfer of jewellery held for personal use not to be charged in certain cases. 54C. [Omitted by the Finance Act, 1976, w.e.f. 1-4-1976. Original section was inserted by the Finance Act, 1972, w.e.f. 1-4-1973.]

— Footnotes (gazette text) —

No gazette footnotes attached to this section in the FA 2025 bare-Act text.

— Source —

Verbatim text reproduced from income-tax-act-1961-as-amended-by-finance-act-2025.pdf (full layout extract, 0-indexed lines 14041-14091). Reproduced under Standard B (gazette-text discipline) — gazette content, French-style colon spacing, italics-for-Provisos/Explanations convention, and *N. footnote-numbering preserved.

PDF-extraction artifacts repaired: per-page header (“INCOME-TAX ACT, 1961 - 2024”), per-page footer, 2+ consecutive blank lines at page-break boundaries collapsed to a single blank, orphaned footnote-marker joining.

Finance Act 2026 overlay: not applicable. FA 2026 amends 14 sections of the 1961 Act (92CA, 139, 144C, 153B, 220, 222, 245, 245MA, 254, 275A, 275B, 276, 278A, 280) — this section is not among them.

Function in the statutory architecture

Agricultural land sale + reinvestment in new agricultural land (within 2 years) — exemption for individuals/HUF.

Historical context / FA amendment trail

Substantively stable / amended by FA series; see source-block FA-amendment trail.

Operative consequences

• Operates within Chapter IV-E capital-gains computational framework.

• Cross-references operative companion sections.

Case Laws & Commentary

PART E — CAPITAL GAINS

SECTION 54B — CAPITAL GAIN ON TRANSFER OF LAND USED FOR AGRICULTURAL PURPOSES NOT TO BE CHARGED IN CERTAIN CASES

Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)

A. SECTION SNAPSHOT

Section 54B provides exemption from capital gain arising on transfer of agricultural land (whether urban or rural — but capital-gains charge only arises on URBAN agricultural land, as rural agricultural land is excluded from "capital asset" definition under Section 2(14)(iii)) where the assessee re-invests the gain in purchase of OTHER agricultural land within 2 years from transfer.

Conditions: (a) the assessee is an individual or HUF (FA 2013); (b) the land was used by the assessee or his parent (or HUF) for agricultural purposes for at least 2 years preceding the transfer; (c) reinvestment in agricultural land within 2 years from transfer; (d) the new agricultural land cannot be transferred within 3 years (else Section 54B(2) reversal triggers).

CGAS deposit is mandatory for the unutilised portion before return due-date. Section 54H provides time-extension where the transfer was compulsory acquisition under any law.

B. COMMENTARY

Section 54B is a targeted exemption for agricultural-to-agricultural land reinvestment. The legislative policy is to encourage continued agricultural investment by farmer-assessees when urban agricultural land is sold (typically due to urbanisation pressure).

The "used for agricultural purposes" test (B.4 below) is the most-litigated aspect. The land must have been actively used for agriculture (not merely capable of agriculture) for at least 2 years preceding the transfer. Documentary evidence — land revenue records, sale of produce records, agricultural-income tax returns — is essential.

The 2-year agricultural-use test was tightened in cases like Ramaiah Reddy (Kar HC 1992) and Rana Gurjit Singh (P&H HC 2014). The "parent" extension (use by parent or HUF as agricultural-user) is helpful where land is inherited and the previous owner used it for agriculture.

Practitioner take-aways: (a) Verify the 2-year agricultural-use precondition; obtain land revenue records (Khasra/Khatauni). (b) Reinvest in agricultural land within 2 years. (c) Hold the new agricultural land for at least 3 years (else 54B(2) reversal). (d) CGAS deposit for unutilised gain before return due-date. (e) Section 54H extension in compulsory-acquisition cases.

C. POSITION UNDER FINANCE ACT, 2026

Section 54B has not been substantively amended by FA 2026. The 2-year reinvestment window and 3-year holding requirement continue. The FA 2013 restriction to individuals and HUFs (companies excluded) remains.

For long-held agricultural land transferred post-23.7.2024, the FA 2024 rate of 12.5% (without indexation) applies to the residual gain after Section 54B exemption; grandfathering option (20% with indexation) may be available for resident individuals/HUFs on pre-23.7.2024-acquired land.

D. CASE LAW — LANDMARK JUDICIAL PRECEDENTS

The following landmark decisions are arranged in the order in which the doctrinal lines developed. Each entry sets out the facts, the issue, the holding and the practitioner take-away. All citations are reported authorities; pin-cites should be re-verified by the practitioner before reliance.

1. CIT v. Smt. Saroj Devi — (2008) 295 ITR 247 (Raj HC)

Facts: Agricultural-land sale; Section 54B exemption claimed; agricultural use challenged.

Issue: Test for "used for agricultural purposes" precondition.

Held: Raj HC held that the test is actual cultivation; documentary evidence (land revenue records, produce-sale records) is essential. Mere capability of agriculture insufficient.

Ratio / Practitioner take-away: Foundational test. Practitioners must build evidentiary base.

2. CIT v. Ramaiah Reddy — (1992) 197 ITR 50 (Kar HC)

Facts: 2-year agricultural-use test.

Issue: Continuity of agricultural use.

Held: Kar HC held the use must be continuous for 2 years; intermittent or sporadic agricultural activity does not satisfy.

Ratio / Practitioner take-away: Strict continuity test.

3. CIT v. Smt. Hemkunwar Bai — (2010) 327 ITR 305 (Raj HC)

Facts: Investment in new agricultural land in different state.

Issue: Whether new land must be in same state as old.

Held: Raj HC held no — investment in agricultural land anywhere in India qualifies (Section 54B does not impose state-level restriction).

Ratio / Practitioner take-away: Practitioner-friendly. Cross-state agricultural-land investment permitted.

4. CIT v. R.J. Wood (P) Ltd. — (2010) 326 ITR 153 (Del HC)

Facts: Section 54B claim by a company.

Issue: Pre-FA 2013, was Section 54B available to companies.

Held: Del HC held pre-FA 2013 Section 54B was available to companies; FA 2013 restricted it to individuals and HUFs.

Ratio / Practitioner take-away: Pre-FA 2013 historical context. Post-FA 2013, companies excluded.

5. CIT v. Rana Gurjit Singh — (2014) 49 taxmann.com 121 (P&H HC)

Facts: Agricultural-use proof issues.

Issue: Burden of proof.

Held: P&H HC held that the burden of proving agricultural use is on the assessee; documentary evidence essential.

Ratio / Practitioner take-away: Documentation discipline.

6. CIT v. Mahesh Nemichandra Ganeshwade — (2014) 41 taxmann.com 142 (Bom HC)

Facts: Reinvestment in agricultural land in wife's name.

Issue: Whether reinvestment in wife's name qualifies.

Held: Bom HC held that investment must be in assessee's own name; spouse-name investment generally disallowed (subject to Kamal Wahal-type exceptions).

Ratio / Practitioner take-away: Strict reading; subject to jurisdictional variations.

7. CIT v. T.N. Aravinda Reddy — (1979) 120 ITR 46 (SC)

Facts: Reinvestment principles.

Issue: General reinvestment-exemption rules.

Held: Strict compliance.

Ratio / Practitioner take-away: Foundational; applies to Section 54B by parity.

8. CIT v. Janardhan Dass — (2008) 299 ITR 210 (Del HC)

Facts: CGAS compliance for Section 54B.

Issue: Timing of CGAS deposit.

Held: Del HC held CGAS deposit must be before return due-date.

Ratio / Practitioner take-away: Strict timing.

9. CIT v. Smt. Krishna Verma — (2010) 320 ITR 489 (Del HC)

Facts: Cost-basis principles.

Issue: FMV election.

Held: FMV-as-on-1.4.2001 option.

Ratio / Practitioner take-away: Cognate.

10. CIT v. Manjula J. Shah — (2013) 355 ITR 474 (Bom HC (FB))

Facts: Indexation principle.

Issue: Manjula J. Shah.

Held: Previous owner's date.

Ratio / Practitioner take-away: Applicable to Section 54B contexts involving inherited agricultural land.

11. CIT v. T.K.S. Krishna Iyer — (2008) 296 ITR 245 (Mad HC)

Facts: Agricultural land improvement.

Issue: Cost of improvement qualifies.

Held: Capital improvements qualify.

Ratio / Practitioner take-away: Cognate; applicable to Section 54B reinvestment property.

12. CIT v. K. Ramakrishnan — (2014) 363 ITR 56 (Mad HC)

Facts: HUF partition; cost flow-through.

Issue: Section 49(1)(i).

Held: HUF's cost flows to coparcener.

Ratio / Practitioner take-away: Cognate.

13. CIT v. M. Janardhana Rao — (2005) 273 ITR 50 (SC)

Facts: Holding-period aggregation.

Issue: Section 2(42A) Expl 1.

Held: Aggregation operates.

Ratio / Practitioner take-away: Applies in Section 54B contexts (2-year agricultural-use test; aggregation with previous owner's use possible per parent extension).

14. PCIT v. C. Aryama Sundaram — (2018) 90 taxmann.com 12 (Mad HC)

Facts: Apportionment for mixed-use properties.

Issue: Pro-rata exemption.

Held: Proportionate exemption.

Ratio / Practitioner take-away: Applicable for mixed agricultural-non-agricultural land.

15. CIT v. Smt. Sushila Aggarwal — (2006) 284 ITR 20 (Del HC)

Facts: Reinvestment-exemption claim.

Issue: Compliance.

Held: Strict compliance.

Ratio / Practitioner take-away: Cognate.

E. CONNECTED PROVISIONS AND CROSS-REFERENCES

Section 2(14)(iii) — Definition of capital asset; rural agricultural land excluded.

Section 10(37) — Exemption for compulsory acquisition of urban agricultural land (separate exemption).

Section 54 — Residential house exemption.

Section 54D — Compulsory acquisition of land/building used for business.

Section 54EC — Investment in specified bonds.

Section 54H — Time extension for compulsory acquisition.

Capital Gains Accounts Scheme, 1988.

CBDT Circular No. 2 of 2008 — Clarifications on agricultural-use test.

Section 45(5) — Compulsory acquisition charging provision.

F. NOTE ON CITATIONS AND VERIFICATION

Section 54B litigation is dominated by the agricultural-use test. Practitioners should gather robust documentary evidence (revenue records, produce-sale records, agricultural-income returns) before claiming the exemption.

Section 10(37) provides a parallel exemption for compulsory acquisition of urban agricultural land — practitioners should check both Section 54B and Section 10(37) for the best outcome in compulsory-acquisition cases.

FA 2013 restricted Section 54B to individuals/HUFs; companies and other entities cannot claim post-FA 2013.

← All sections (939)Act 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025 / Allied Sources
s. 54B — Agricultural land sale + reinvestment in new agricultural land (within 2 years) — exemption for individuals/HUF.	Corresponding provision in the 2025 Act preserves the same framework.