Section 54B: Capital Gains Exemption on Sale of Agricultural Land

Last updated: Oct 2026

Section 54B defers or removes tax on the gain from selling urban agricultural land when you reinvest in farmland. Rural agricultural land is not a capital asset, so its sale needs no exemption.

• Who: an individual or Hindu Undivided Family (HUF), where the land was farmed by them or a parent for 2 years before the sale
• Reinvest: buy agricultural land within 2 years of the sale
• Deposit: place unused gains in the Capital Gains Account Scheme before the return due date
• Exemption: the lower of the gain and the amount reinvested

• Hold: keep the new land for 3 years, or the exemption is withdrawn

  
  

Check whether your land is urban or rural before you plan. If it is urban, fix the reinvestment and the deposit date before you sell.

Section 54B is a capital gains exemption for farmers who sell agricultural land and buy other agricultural land. The Income Tax Act, 1961 contains it, and Section 83 of the Income Tax Act, 2025 replaces it from Tax Year 2026-27.

It exempts the gain, whether short-term or long-term, up to the amount reinvested. The Income Tax Department's guide describes the conditions, which this page follows.

Section 54B matters only for urban agricultural land, because the sale of rural agricultural land attracts no capital gains tax. Section 2(14) of the Act decides which is which.

The distance bands follow Section 2(14), and the distance is measured as the Act and its notifications state. Ask a tax professional to confirm the position for your village.

Five conditions apply, and missing one defeats the claim.

If you sell the new land within 3 years, the exemption is withdrawn, and the gain becomes taxable in that year. A deposit that you do not use within 2 years also becomes taxable.

The exemption equals the lower of the capital gain and the amount you invest in new agricultural land, including the deposit.

Formula used: Exemption = lower of (capital gain, amount invested). Taxable gain = capital gain − exemption.

The 12.5% rate applies to long-term gains without indexation. Land bought before 23 July 2024 may use 20% with indexation, at the seller's choice.

Deposit the unused gain in the Capital Gains Account Scheme before the due date of your return. The deposit counts as an investment for the exemption.

The deposit must be used to buy agricultural land within 2 years of the sale. If it is not, the unused part becomes taxable in the year when the 2 years end. A deposit alone is not enough. The Department's guide stresses that the land must still be bought within the period. Keep the bank's receipt of the deposit with your return.

Consider Mohan Reddy, a 52-year-old farmer near Hyderabad with a household income of Rs. 1.8 lakh a month and a CIBIL Score of 758, who farmed his own plot for 8 years and sold it for Rs. 80 lakh.

Mohan holds the new land for 3 years. He saves Rs. 5,85,000 of tax against selling with no reinvestment. A larger purchase of Rs. 60,00,000 would have made the gain fully exempt.

Bajaj Finance assesses repayment from income, and a one-time gain on a land sale is not regular income. Keep the sale deed and the tax computation, because a lender may ask for them. Bajaj Finance does not offer home loans to Non-Resident Indians (NRIs).

Approval timelines can extend where income or land records need clarification, and minimum income thresholds can differ by city. Check your home loan eligibility and read the guide to Section 54GB for another capital gains route.