Can you claim Section 54F tax exemption on sale of inherited agricultural land? Here’s what expert says

An individual told Mint that he had inherited an agricultural land parcel from his father and was the second generation to inherit it. The original purchase date of this non-residential asset is estimated to be between 40 and 50 years ago.

He asked whether the sale proceeds from agricultural land could be reinvested in a house to claim a deduction under Section 54F of the Income-tax Act, or whether they qualify for the Section 54 exemption.

Parizad Sirwalla, Partner and National Head – Tax, Global Mobility Services, KMPG, noted that to determine taxability on the land parcel’s sale as capital gains and related deductions, “it should first be examined whether the said agricultural land qualifies as a capital asset.”

As per the Income-tax Act, 1961(‘the old Act’)/ the Income-tax Act, 2025 (‘the new Act’), agricultural land in India does not qualify as a capital asset, except where:

Accordingly, Sirwalla said, only where an agricultural land qualifies as a capital asset based on the above, the sale of the same shall give rise to taxable capital gains.

Assuming that the agricultural land of the individual qualifies as a capital asset, as the total holding period of the land (including that of previous owners) is 40-50 years, Sirwalla said it shall qualify to be a long-term capital asset, and gains on the same shall be considered long-term (LTCG).

What deductions are this agricultural land sale eligible for?

Sirwalla noted that the deduction under Section 54 of the old Act (Section 82 of the new Act) is available towards LTCG arising on the sale of a residential house.

Accordingly, she said, the sale of agricultural land shall not be eligible for deduction under this section.

Sirwalla also noted that the deduction under Section 54F of the old Act (Section 86 of the new Act) is available towards LTCG arising on the sale of any long-term capital asset (except a residential house).

Accordingly, in the instant case, she said, the deduction under this section can be examined if the net consideration is invested in a residential house in India within the specified timelines and all other specified conditions are satisfied.

Sirwalla suggested that there is another deduction prescribed under Section 54B of the old Act (Section 83 of the new Act), towards LTCG arising on the sale of any land which was used by the assessee/ his parent for agricultural purposes.

“If another land is purchased for use for agricultural purposes, subject to satisfaction of other specified timelines and conditions, which may be examined if applicable,” she said.