Income Tax Exemption on Sale of Agricultural Land – ITR Filing 2025 FAQs

The income tax return filing season for FY 2024-25 (AY 2025-26) has begun, and many individuals are exploring exemptions and deductions to reduce their tax liability. One of the most frequently asked questions is about the income tax exemption on sale of agricultural land.

Indian families often inherit or hold agricultural land. While income from agriculture is generally exempt under Section 10(1) of the Income Tax Act, the sale of agricultural land, particularly urban land, may be taxable under the head "Capital Gains."

What is the Capital Gains Tax on Agricultural Land?

The capital gains tax depends on whether the land sold is classified as rural or urban:

• Rural Agricultural Land: Not a capital asset – so, no capital gains tax.

• Urban Agricultural Land: Treated as a capital asset – hence, capital gains tax applies, either short-term or long-term based on the holding period.
  

If you've sold urban agricultural land and want to understand your tax liability, a Capital Gain Valuation service can determine your actual gains for tax reporting.

Income Tax Exemption on Sale of Agricultural Land under Section 54B

Section 54B of the Income Tax Act offers capital gains exemption if the sale proceeds are reinvested in new agricultural land.

✅ Key Conditions for Exemption:

• The land sold must have been used for agricultural purposes by you, your parents, or HUF for at least 2 years prior to sale.

• The new land must also be used for agricultural purposes.

• Applies to both short-term and long-term capital gains.
  

✅ Amount of Exemption:

The exemption under Section 54B is the lower of:

• The capital gains earned from the sale, or

• The amount reinvested into new agricultural land (including eligible deposits in the Capital Gains Deposit Account).
  

Reporting Capital Gains & Claiming Exemption in ITR

Taxpayers must report the capital gains in the Capital Gains Schedule while filing their Income Tax Return. Accurate disclosure is crucial to avoid future queries or scrutiny.

If you receive an income tax notice or query, it's best to consult experts for Tax Notice Handling to ensure timely resolution and compliance.

Professional Support for ITR Filing and Exemption Claims

At SS Auditors, we assist you in:

• Capital Gain Valuation – Know your tax liability accurately

• Income Tax Return Filing – Ensure correct capital gains reporting and exemption claims

• Tax Notice Handling – Expert response to notices and inquiries from the Income Tax Department
  

Let our professionals help you maximize your exemptions and file your return correctly. Contact us if you’ve sold agricultural land and want to legally save on capital gains tax.