Sold Agricultural Land? How Section 54B Can Bring Your Capital Gains Tax to Zero in 2026
4 min read
If you plan to buy agricultural land again, Section 54B of the Income Tax Act can cut that tax down, or even wipe it out completely. Here’s who qualifies, how the CGAS account works, and what to keep ready.
First, check if your land is even taxable
Not all agricultural land attracts capital gains tax. Rural agricultural land is not a “capital asset” under tax law, so selling it is tax free with no exemption needed.
Only urban agricultural land is taxed. Land counts as urban if it falls within these limits:
Municipality population | Land is urban if within |
|---|---|
10,000 to 1 lakh | 2 km of municipal limits |
1 lakh to 10 lakh | 6 km |
Above 10 lakh | 8 km |
Since GHMC’s population is well above 10 lakh, a lot of farmland on Hyderabad’s outskirts is urban for tax purposes. That’s where Section 54B helps.
Section 54B: the 3 qualifying checkpoints
Checkpoint | What it means |
|---|---|
2-year farming history | You or your parents (or your HUF) must have used the land for agriculture for 2 years immediately before the sale |
2-year buying window | Buy new agricultural land within 2 years from the date of sale |
3-year lock-in | Don’t sell the new land within 3 years of buying it |
Section 54B is available only to individuals and HUFs. It covers both long-term and short-term gains, and there’s no upper limit on the exemption.
How much tax is saved?
The exemption is the lower of your capital gain or the cost of the new land.
Capital gain | New land bought for | Exempt | Taxable |
|---|---|---|---|
₹60 lakh | ₹70 lakh | ₹60 lakh | Nil |
₹60 lakh | ₹45 lakh | ₹45 lakh | ₹15 lakh |
If you sell the new land within 3 years, the exemption is clawed back. The cost of the new land is reduced by the exempted amount, so you end up paying that tax when you sell.
CGAS: when you haven’t found the new land yet
You get 2 years to buy new land, but your income tax return is due much earlier. If you haven’t bought the land by the ITR due date, you must deposit the unused gain in a Capital Gains Account Scheme (CGAS) account before filing. Without this deposit, you lose the exemption.
CGAS account process, step by step
Choose a bank. CGAS accounts are opened at SBI, nationalised banks and other banks notified by the government. Not every branch handles them, so check first.
Pick the account type. Type A works like a savings account for flexible withdrawals. Type B is a term deposit with higher interest but less flexibility.
Deposit with Form A. Since the 2025 amendment, you can pay through NEFT, RTGS, UPI or net banking, not just cheque.
Claim the exemption in your ITR. Mention the CGAS deposit details when you file.
Withdraw to buy land. Use Form C for the first withdrawal and Form D after that. Spend the withdrawn money on the land within 60 days.
Close the account. Closing it needs approval from your Assessing Officer using Form G (Form H for legal heirs). From April 2027, these forms move fully online.
If any amount in the CGAS account is still unused 2 years after your sale, it becomes taxable as capital gains in that year.
2026 farm land tax exemption toolbook: keep these ready
Sale deed of the old land and purchase deed of the new land
Pahani or Adangal records showing farming for the 2 years before the sale
Pattadar passbook and Dharani or Bhu Bharathi records
Proof of distance from the nearest municipality, to settle rural or urban status
CGAS deposit receipt and bank statements
Payment proofs for the new land
2026 farm land tax exemption toolbook: keep these ready
Sale deed of the old land and purchase deed of the new land
Pahani or Adangal records showing farming for the 2 years before the sale
Pattadar passbook and Dharani or Bhu Bharathi records
Proof of distance from the nearest municipality, to settle rural or urban status
CGAS deposit receipt and bank statements
Payment proofs for the new land
This is general information only. Please consult your CA before selling or reinvesting.
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