Bought new agricultural land before selling old one? Why Budget 2026 must allow capital gains tax exemption

Section 54B of the Income-tax Act allows an individual or Hindu Undivided Family (HUF) to claim exemption from capital gains arising on the transfer of urban agricultural land provided that the gains are reinvested in the purchase of another agricultural land within two years of the transfer. This tax exemption amount is the lower of the capital gain from sale, or the amount invested in acquiring new agricultural land (including amounts deposited in the Capital Gains Account Scheme, if used).

The new Income Tax Act, 2025, Section 83 (54B of the old Act) also provides tax exemption to individuals or HUF from capital gains arising from selling agricultural land, provided the capital gains are invested in new agricultural land within the prescribed time limit.

Section 83 provides relief when the capital gain arising from the transfer of agricultural land is reinvested in another agricultural land within two years after the transfer date.


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Sections 82 of the Income Tax Act, 2025 (Corresponds to Section 54 of the Income Tax Act, 1961) and Sections 86 of the new 2025 Act (Corresponds to Section 54F of the 1961 Act) also allow capital gain exemption if the taxpayer buys a residential house either within one year before or two years after the date of transfer of the original asset.

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According to Taxmann research, unlike Section 82/86, Section 83 does not allow the capital gain exemption if the assessee purchases agricultural land before selling their old agricultural land.

For Budget 2026, Taxmann says: “It is recommended that the deduction under Section 83 should be allowed even if the assessee purchases the new agricultural land before selling the original agricultural land.”

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CA Gopal Bohra, Partner - Direct Tax, N. A. Shah Associates LLP, said to ET Wealth Online: "Currently section 54B or section 83 of Income Tax 2025 does not allow exemption from capital gains in respect of new agriculture lands purchased prior to the date of transfer of old agriculture land."

According to Bohra, the tax exemptions is available only with respect to new agriculture lands acquired within two years from the date of transfer of agriculture land. The provision of section 54B (83 of 2025 Act) is with the intention to exempt capital gains when a farmer shift his agricultural land for certain reason and for that purpose he need to sale his old agricultural land and from the sale proceeds he purchased another agricultural land.

Bohra says: "Thus, the benefit is given to avoid unnecessary hardship to a farmer to pay tax when he sale his agriculture land not with the objective to make profit but to shift to another land for other reasons."

Bohra says that many a time it might happens that a farmer has to acquire new agriculture land prior to transfer of old land considering opportunity of availability of new land at proper location or price of land, etc. however, currently in such scenario he loose out the relief under section 54B (83 of 2025) of the Act.

Bohra says: "This cause a hardship to the farmer specially when he sold the existing lands to shift to another land but as a sequence of transaction he acquired first and then sold. In this Budget FM should consider extending relief to the farmer, in line with section 54 or 54F (82 or 86 of 2025 Act), when new agriculture lands acquired within one year from the date of transfer of existing land."

What are the terms and conditions for getting tax exemption on agricultural land?

Chartered Accountant Abhishek Soni, co-founder, Tax2Win, says that for claiming exemption under Section 54B, taxpayers must meet specific eligibility criteria and certain conditions. Here are the terms & conditions to be fulfilled for claiming exemption under section 54B -

• Eligible taxpayers: Only individuals and HUFs can claim this benefit.
• Eligible asset: The land sold must be urban agricultural land.
• Usage condition: The land must have been used for agricultural purposes by the taxpayer, their parents, or a member of the HUF for at least 2 years immediately before the sale.
• Reinvestment requirement: The capital gain must be used to purchase new agricultural land within 2 years from the date of transfer.
• CGAS: If reinvestment hasn’t been made by the ITR filing due date, the unutilized gain must be deposited in the Capital Gains Account Scheme (CGAS).
• Lock-in period: Selling the new agricultural land within 3 years will revoke the exemption, and the earlier exempt amount will be taxed.
• Amount of exemption: The exemption is limited to the lower of the capital gain or the amount invested in new land (including CGAS deposits).
• Deadline: The income tax exemption can be claimed only if the new agricultural land is purchased within 2 years from the date of sale of the original agricultural land.