Section 83 · Computation of total income
Section 83 of the Income-tax Act, 2025 — Capital Gains Exemption on Sale of Agricultural Land
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 83, Income-tax Act 2025
83. (1) Where an assessee, being an individual or a Hindu undivided family,—
(a) has capital gains arising from the transfer of a capital asset, being land,
which was used by the assessee or his parent, or the Hindu undivided
family for agricultural purposes (original asset), in two years immediately
preceding the date of transfer; and
(b) has, within two years after that date, purchased any other land for being
used for agricultural purposes (new asset),
then, instead of the capital gains being charged to income-tax as income of the tax
year in which the transfer took place, it shall be dealt with as follows:—
(i) if the capital gains exceed the cost of the new asset, such excess shall be
charged under section 67, and for computing any capital gains arising
from the transfer of the new asset within three years of its purchase, the
cost shall be nil; or
(ii) if the capital gains is equal to or less than the cost of the new asset, no
capital gains shall be charged under section 67, and for computing any
capital gains arising from the transfer of the new asset within three years
of its purchase, the cost shall be reduced by the amount of the capital
gains.
(2) If the capital gains referred to in sub-section (1) is not utilised by the assessee to
purchase the new asset before filing the return of income under section 263, then—
(a) the unutilised amount shall be deposited in a specified bank or institution
and utilised as per the scheme notified by the Central Government;
(b) such deposit shall be made before the filing of the return and not later
than the due date applicable in the case of the assessee for filing the
return of income under section 263(1); and
(c) the proof of deposit shall be submitted along with such return.
(3) For the purposes of sub-section (1), the amount already utilised for purchasing
the new asset together with the deposited amount under sub-section (2), shall be
deemed to be the cost of the new asset.
(4) If the amount deposited under sub-section (2) is not fully utilised for purchase
of the new asset within the period specified in sub-section (1), then,—
(a) the unutilised amount shall be charged under section 67 as the income
of the tax year in which two years from the date of the transfer of the
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In plain language
What Section 83 says in plain English
Section 83 of the Income-tax Act, 2025 gives an exemption from capital gains tax when you sell agricultural land and buy another piece of agricultural land with the money. It is the direct successor to the well-known Section 54B of the old Income-tax Act, 1961. The idea is simple and fair: if a farmer or a farming family sells one field only to buy another field, the government does not want to tax that switch as if it were a windfall profit. The Finance Act, 2026 has carried this relief forward largely unchanged, effective from 1 April 2026.
Who can claim it
- Only an Individual or a Hindu Undivided Family (HUF) can claim Section 83. Companies, firms, LLPs and trusts are not eligible.
- The land must have been used for agricultural purposes for at least the two years immediately before the sale — by the taxpayer, by his or her parent, or (in the case of an HUF) by the HUF.
- It applies to both rural and urban agricultural land. Rural agricultural land is not even a "capital asset", so it is already outside tax; Section 83 mainly rescues gains on urban agricultural land, which is taxable.
The core conditions you must satisfy
- Two-year usage test: the land sold must have been genuinely cultivated/used for agriculture in the two years before transfer.
- Reinvestment in new agricultural land within 2 years from the date of sale (before or after, within the window).
- Full vs partial exemption: if the cost of the new land is equal to or more than the capital gain, the entire gain is exempt. If it is less, only the shortfall (gain minus amount reinvested) is taxed.
- Capital Gains Account Scheme (CGAS): if you cannot buy the new land before the due date for filing your return, you must deposit the unutilised gain in a CGAS account with a specified bank by that due date, and use it later.
The traps — lock-in and unutilised deposits
- 3-year lock-in on the new land: if you sell the newly bought agricultural land within 3 years, the earlier exemption is clawed back. This is done by reducing the cost of the new asset by the exempted gain (or treating it as nil), which inflates the taxable gain on that later sale.
- CGAS not used in time: if the deposited money is not used to buy agricultural land within 2 years, the unutilised amount becomes taxable as capital gains in the year the 2-year period expires.
How it interacts with related sections
Section 83 sits inside the family of capital-gains exemptions (Sections 82 to 86). You cannot claim the same gain twice. It works alongside Section 82 (residential house), Section 84 (compulsory acquisition), Section 85 (54EC bonds) and Section 86 (54F). Whether the gain is long-term or short-term, Section 83 can apply — unlike the bond route in Section 85 which needs a long-term asset. The type of gain still decides the tax rate on any un-exempted portion.
Practical implications
- Keep proof of cultivation — 7/12 extracts, khasra/girdawari records, crop receipts — to defend the two-year usage test.
- Plan the purchase timeline; if buying later, open the CGAS account before your ITR due date.
- Do not sell the new land for 3 years, or you lose the benefit retrospectively.
💡 Example
Example 1 — Full exemption. Ramesh, an individual, sells his urban agricultural land in June 2026 for ₹80,00,000. Its indexed cost was ₹30,00,000, giving a long-term capital gain of ₹50,00,000. Within two years he buys another agricultural field for ₹55,00,000. Because the new land (₹55 lakh) costs more than the gain (₹50 lakh), the entire ₹50,00,000 gain is exempt under Section 83 and his tax on this transaction is nil.
Example 2 — Partial exemption. Suppose Ramesh instead buys new agricultural land for only ₹35,00,000. His gain was ₹50,00,000. Exemption is limited to the amount reinvested (₹35,00,000), so ₹15,00,000 remains taxable as long-term capital gain (taxed at the applicable LTCG rate, currently 12.5% without indexation for such assets after the 2024-25 overhaul, plus cess). Had he parked the ₹15 lakh in a CGAS account before his ITR due date and bought more land later, he could have saved even that.
A relatable story. Meena's family in Jaipur had farmed a small plot on the city's edge for three generations. When a builder offered a good price, Meena worried the tax would eat the money meant to buy a bigger farm further out. Her CA explained Section 83: sell now, reinvest in new farmland within two years, and the gain escapes tax. She sold, deposited the surplus in a Capital Gains Account at her bank before filing her return, and six months later bought 4 acres near Chomu. Because she held the new land well beyond three years, the exemption stuck — the family upgraded their farm without paying a rupee of capital gains tax.
| Condition | Requirement under Section 83 (2025 Act) |
|---|
| Eligible taxpayer | Individual or HUF only |
| Asset sold | Agricultural land (rural or urban) |
| Prior-use test | Used for agriculture for 2 years before sale (by assessee/parent/HUF) |
| New asset | Another agricultural land |
| Reinvestment window | Within 2 years from date of transfer |
| Full exemption | Cost of new land ≥ capital gain |
| Partial exemption | Cost of new land < gain (excess is taxed) |
| CGAS deposit | Unutilised gain to be deposited before ITR due date |
| Lock-in on new land | 3 years (early sale claws back exemption) |
| Old Act equivalent | Section 54B of the Income-tax Act, 1961 |
Related sections
Section 82 — Capital gains exemption on sale of residential house (old 54) Section 84 — Capital gains on compulsory acquisition of land/building (old 54D) Section 85 — Capital gains exemption on investment in bonds (old 54EC) Section 86 — Capital gains exemption on investment in a residential house (old 54F) Section 67 — Mode of computation of capital gains Section 2 — Definition of capital asset and agricultural land
Frequently asked questions
Which old section does Section 83 of the Income-tax Act, 2025 replace?
It replaces Section 54B of the Income-tax Act, 1961. The exemption for reinvesting agricultural sale proceeds into new agricultural land has been carried forward with essentially the same conditions.
Can a company or partnership firm claim Section 83?
No. The exemption is available only to Individuals and Hindu Undivided Families (HUFs). Companies, LLPs, firms and trusts cannot claim it.
Does the land have to be rural agricultural land?
No. It can be rural or urban agricultural land. Rural agricultural land is usually not a capital asset at all, so Section 83 is most useful for urban agricultural land whose gains are taxable.
What happens if I cannot buy the new land before filing my return?
Deposit the unutilised capital gain in a Capital Gains Account Scheme (CGAS) account with a specified bank before the due date for filing your ITR, and use it to buy agricultural land within two years.
How long must I hold the new agricultural land?
At least three years. If you sell the new land within three years, the earlier exemption is withdrawn and the amount becomes taxable in the year of that sale.
Is the exemption full or proportionate?
If the cost of the new agricultural land is equal to or more than the capital gain, the whole gain is exempt. If the cost is less, only the reinvested amount is exempt and the balance is taxed.
Does Section 83 apply to short-term capital gains too?
Yes. Unlike the bond exemption under Section 85, Section 83 can apply whether the gain on the agricultural land is short-term or long-term, provided the two-year usage and reinvestment conditions are met.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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