How to Claim Exemption on Long-Term Capital Gains for Agricultural Land

To avoid capital gains tax on the sale of urban agricultural land, consider reinvesting in another agricultural land within two years or specified assets. Exemptions under Sections 54B and 54F can apply if conditions are met. Section 54B provides for exemption of taxable long-term capital gains in respect of the sale of agricultural land if another agricultural land is bought within two years from the date of sale of the land. If the original agricultural land was situated in an urban area, exemption under Section 54B can still be claimed by purchasing land in a rural area. Moreover, if this rural land is sold even within three years, there would be no capital gains, short-term or long-term.

Additionally, Section 54F allows for exemption if the net sale consideration is invested in a residential house within one year before or two years after the sale of the old property. Investing in capital gains tax-saving bonds under Section 54EC within six months can also save long-term capital gains. The bonds have a lock-in period of five years, and one can invest up to Rs. 50 lakhs in bonds during one financial year.