The last date to file ITR is July 31, today. And, as per reports, the chances of extending the deadline are slim. While filing the ITR, several confusions arise. One of which is regarding the profits made from the sale of agricultural land.

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Although Agricultural land in Rural Areas of India is not considered a capital asset and any gains from its sale are not taxable under the head Capital Gains, there are some conditions that need to be met for the exemption.

When is the sale of agricultural land exempt?

In some cases, the sale of agricultural land can be entirely exempt from income tax under section 54B of the Income Tax Act or it may not be taxed under the head capital gains.

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If the Agricultural land is in a Rural Area, then it is not considered a capital asset and any gains from its sale are not taxable under the head Capital Gains.

If it is urban agricultural land, then it will be taxed under the head Capital Gains.

However, under Section 10(37) of the Income Tax Act, Capital Gains on compensation received on compulsory acquisition (acquisition by the government, etc.) of urban agricultural land is exempt from taxation.

Here are the following conditions that need to be met under section 54B for claiming exemption from capital gains:

– The tax exemption is available to an Individual or a Hindu United Family (HUF).

– The land being sold must have been used for agricultural purposes for a period of two years immediately before the date of sale.

– Another land for the agricultural purpose should be purchased with the money received from the sale within a period of 2 years from the date of transfer.

– The new agricultural land purchased to claim capital gains exemption should not be sold within a period of three years after its purchase.

– Therefore, in case your agricultural land falls within the definition of rural agricultural land and you meet the conditions as per income tax laws, the land is not treated as a capital asset for taxation purposes. Since this is not a capital asset for capital gains purposes, the profits made on sale/transfer will also not be taxed under income tax laws, as per a Mint report.

Also read: 11 lesser known tax deductions you shouldn't miss while filing ITR