s.54B — Exemption on agricultural land reinvested in agricultural land
An individual or Hindu undivided family whose land was used for agriculture in the two years before its transfer is exempt to the extent the gain is invested in other agricultural land bought within two years after.
The words "the assessee being an individual or his parent, or a Hindu undivided family" were substituted for "the assessee or a parent of his" by section 18 of the Finance Act, 2012 with effect from 1 April 2013, so a Hindu undivided family qualifies from assessment year 2013-14. The text was read in the Department's 2024 (No. 2) edition. The counterpart in the Income-tax Act, 2025 is section 83.
Income-tax Act, 1961
s.54B
Income-tax Act, 2025
s.83
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 54B(1) of the Income-tax Act, 1961 applies where the capital gain arises from the transfer of 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", and the assessee has, "within a period of two years after that date, purchased any other land for being used for agricultural purposes". If the gain exceeds the cost of the new land, only the excess is charged; otherwise nothing is; and if the new land is transferred within three years of its purchase, its cost for that sale is nil or reduced by the exempted gain. Sub-section (2) requires any amount not used before the return is filed to be deposited in the notified scheme, "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", with proof attached to the return; a deposit not used within two years is charged in the year in which two years from the transfer expire. In Popatrao Dashrathrao (Pune Tribunal, 21 January 2026, assessment year 2017-18) section 54B was denied because the new land, bought in March 2017, came more than two years after the registered joint venture agreement of 20 January 2011 and the section had already been claimed for assessment years 2014-15 to 2016-17 (paragraphs 4 and 21); before the Tribunal the owner accepted that neither section 54B nor section 54F was available (paragraph 22). The Tribunal found "some force" in his argument that no gain arose in 2011 because the land was agricultural (paragraph 23) but made no finding on the land's character; it held the transfer took place in assessment year 2011-12, took the market value of the flats on their handover in December 2014 as their cost, and remitted the computation of the gain on their sale to the Assessing Officer (paragraph 28). For a joint development the conditions that bite are the two years of agricultural use before the date of transfer, which a non-agricultural conversion before the agreement may break, and the windows that run from that date. The counterpart in the Income-tax Act, 2025 is section 83, which applies to an individual or Hindu undivided family on land that "was used" for agriculture by the assessee, his parent or the Hindu undivided family in the two preceding years, with the deposit in sub-sections (2) to (4).
What the provision does
Exempts the gain on agricultural land to the extent it is reinvested in other agricultural land bought within two years after the transfer, with a deposit scheme for money not yet used and a clawback if the new land is sold within three years. It is not available to a company, firm or trust, it does not allow construction or a purchase before the transfer, and it does not say whether land converted to non-agricultural use before a joint development agreement still meets the agricultural use condition.
Threshold questions
- Is the assessee an individual or a Hindu undivided family
- Was the land a capital asset, being agricultural land within the limits in section 2(14)(iii) or land already non-agricultural
- Was the land used for agricultural purposes by the assessee, a parent or the Hindu undivided family in the two years immediately preceding the date of transfer
- What is the date on which the transfer took place, from which the two-year windows run
- Was other land bought for agricultural use within two years after that date, or the unused gain deposited by the due date under section 139(1)
- Is the new land sold within three years of its purchase, which withdraws the exemption through its cost
In practice
The recurring disputes.
Agricultural use where the land is converted or handed over before the transfer
In Gujarat land is usually converted to non-agricultural use before a joint development agreement, often well before it. The Revenue's best argument is that land converted and handed to a developer was not "being used ... for agricultural purposes" in the two years before the transfer, and the Supreme Court in Sarifabibi Mohmed Ibrahim (14 September 1993, paragraphs 12 and 20) held Surat land sold to a housing society non-agricultural because of the agreement to sell for housing, the owners' own applications under section 63 of the Bombay Tenancy and Agricultural Lands Act to sell for a non-agricultural purpose, four years without cultivation, its location and its price. The owner's answer is that use is a question of fact, that revenue records showing cultivation up to the transfer suffice, and that non-agricultural permission obtained by the buyer does not end agricultural character: the Gujarat High Court in Siddharth J. Desai (22 September 1981) held rural land still agricultural though the buyer obtained that permission days after the conveyance and though the owner had obtained permission under section 63 for the sale. That was a decision on character, on land not cultivated at the time of sale, so it does not by itself prove use in the two preceding years. No decision fixes when land under a joint development agreement stops being in agricultural use; an owner who converted it himself before signing is exposed.
Which date starts the two-year windows under a joint development agreement
The look-back and the purchase window both run from "the date on which the transfer took place". The Revenue's argument is that this is the section 2(47) date, the agreement with possession, even where section 45(5A) moves the charge to the completion certificate year, so an owner who waits for the certificate before buying land will have missed the window. The owner's argument is that section 54B(1) speaks of the gain that would otherwise be charged in the year of transfer, and that where section 45(5A) makes the gain arise in the certificate year the windows should be read with it. Where the year of transfer itself is disputed, as between the Ahmedabad Tribunal in Jigneshbhai Shivabhai Patel (2022) and the Surat Tribunal in Bhanuben Surati (2025) on agricultural land sold to a non-agriculturist, the window moves with it. No decision on the point was found; in Popatrao Dashrathrao the Assessing Officer and the Commissioner (Appeals) ran the purchase window from a 2011 registered agreement, before section 45(5A), which the Assessing Officer also treated as the date the land became stock-in-trade, rejecting the owner's later date of transfer, and the owner did not contest it before the Tribunal. The safe course is to buy the new land within two years of the agreement and possession.
The deposit by the return due date
Section 54B(2) has the same structure and the same bracketed outer limit as section 54(2) and section 54F(4). For the Revenue, the Bombay High Court held the deposit by the due date under section 139(1) mandatory for whatever is not used before the return is filed, in Humayun Suleman Merchant (18 August 2016, read as reproduced in later orders; the judgment itself was not located) and Rasiklal M. Parikh (10 March 2017), and the Madras Division Bench in Venkata Dilip Kumar (15 October 2020, paragraph 19), dismissing the Revenue's appeal as infructuous, said Humayun prima facie reflects the correct position, vacated the single judge's finding and left the question of law open. For the assessee, the Punjab and Haryana High Court in Jagtar Singh Chawla (20 March 2013) allowed the exemption where the amount was used before the due date under section 139(4), and the Ahmedabad Tribunal followed that line in Shrawankumar G. Jain (3 October 2018) without the Bombay decisions being cited; separately, the Karnataka Division Bench in K. Ramachandra Rao (14 July 2014), a case of converted land in which sections 54B and 54F were claimed, held under section 54F(4) that the deposit rule does not bite where the consideration is invested within three years, a ruling Humayun treated as given sub silentio. None of these is a section 54B case, but the words are the same. There is no Gujarat High Court ruling, and the safe course is to deposit by the due date.