Explained: How can income tax be saved on selling urban agricultural land?

I have Long Term Capital Gain (LTCG) on selling an ancestral urban agriculture land. How can I save taxes on such long-term capital gains?

Regarding the sale of agricultural land capital gain, which is taxable because it is not farmland and is not treated as a capital asset for taxation purposes, an individual and HUF have three options to claim exemption from paying taxes on LTCG. Such land is generally referred to as urban agricultural land.

Under the first option, you can avail yourself of the exemption under Section 54EC by investing in the indexed LTCG for the purchase of capital gain bonds of specified financial institutions like NHAI, REC, RFC, and PFC within six months from the date of sale of the urban agricultural land.

Finally, suppose you do not want to invest in capital gains bonds or buy a residential house. In that case, you can claim exemption from tax on long-term capital gains on your agricultural land under Section 54B by investing the indexed LTCG for acquiring another agricultural land within two years from the original agricultural land’s sale date.

Please note that to the extent the money is not utilised to acquire the house or agricultural land by the due date of filing your ITR, the unutilised portion of the funds must be deposited in a capital gains account, which can be utilised for the specified purpose.

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Balwant Jain is a tax and investments expert and can be reached on [email protected] and @jainbalwant on his X handle.

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