Exemption on Agricultural Land Transfer and Compulsory Acquisition: Sections 83 and 84, Income Tax Act 2025
Under the Income Tax Act 2025, section 83 lets an individual or HUF avoid capital gains tax on the sale of agricultural land if they buy other agricultural land within two years. Section 84 gives a similar relief when land or a building of an industrial undertaking is compulsorily acquired and a replacement is bought or built within three years. In both cases the gain is not charged to the extent it is reinvested; any excess is taxed under section 67.
This guide explains the conditions, the deposit route when you have not reinvested before filing your return, and what happens if you sell the new asset or fail to use the money. All figures come from the Act as amended by the Finance Act, 2026. It is general information, not tax advice. For how capital gains are computed in the first place, see our guide on capital gains under the 2025 Act.
Is rural agricultural land taxable? Rural vs urban land
Before asking whether section 83 applies, check whether the land is a capital asset at all. Section 2(22)(iii) excludes agricultural land in India from "capital asset" unless it falls in the urban zone below. So a sale of rural agricultural land produces no capital gain, and section 83 is not needed. Section 83 matters for urban agricultural land, which is a capital asset.
| Land is a capital asset (urban) if it is... | Detail under section 2(22)(iii) |
|---|---|
| Within a municipality or cantonment board area | Population of not less than 10,000 |
| Near a municipality with population of more than 10,000 and up to 1,00,000 | Within 2 km, measured aerially from its local limits |
| Near a municipality with population of more than 1,00,000 and up to 10,00,000 | Within 6 km, measured aerially |
| Near a municipality with population of more than 10,00,000 | Within 8 km, measured aerially |
Section 83 refers to "capital gains" without limiting them to long-term or short-term gains, so it can apply to either, as long as the conditions are met.
What does section 83 of the Income Tax Act 2025 say about agricultural land?
Section 83(1) applies when an individual or a Hindu undivided family (HUF) has capital gains from transferring land, and two conditions are met:
- The land (the "original asset") was used for agricultural purposes by the assessee, the assessee's parent, or the HUF, in the two years immediately before the date of transfer; and
- Within two years after the date of transfer, the assessee purchases other land to be used for agricultural purposes (the "new asset").
If both hold, the gain is not simply taxed in the tax year of transfer. It is dealt with under the reinvestment rules in the next section.
How much of the gain is exempt if I buy new agricultural land?
Compare the capital gain with the cost of the new land (section 83(1)(i) and (ii)):
| Situation | Gain charged under section 67 | Cost of the new land if sold within 3 years of purchase |
|---|---|---|
| Gain is more than the cost of new land | Only the excess | Nil |
| Gain is equal to or less than the cost of new land | Nothing | Actual cost reduced by the gain |
The three-year rule matters. If you sell the new land within three years of buying it, its cost is cut down (or made nil) when computing the gain on that second sale. The deferred gain therefore comes back into the tax net.
Worked example 1: gain larger than the new land (tax year 2026-27)
Assumptions: Ravi, an individual, sells farm land in August 2026 (tax year 2026-27). The land was used for agriculture by him in the preceding two years. The capital gain is Rs 18,00,000. In March 2027 he buys other agricultural land for Rs 12,00,000.
| Step | Amount (Rs) |
|---|---|
| Capital gain on sale | 18,00,000 |
| Cost of new agricultural land | 12,00,000 |
| Gain exceeds cost, so excess is charged under section 67 (18,00,000 - 12,00,000) | 6,00,000 |
| Gain not charged | 12,00,000 |
| Cost of new land if sold within 3 years of purchase | Nil |
Worked example 2: gain smaller than the new land (tax year 2026-27)
Assumptions: Meena (individual) sells agricultural land in July 2026 with a capital gain of Rs 10,00,000. In June 2027 she buys other agricultural land for Rs 14,00,000.
| Step | Amount (Rs) |
|---|---|
| Capital gain on sale | 10,00,000 |
| Cost of new agricultural land | 14,00,000 |
| Gain is less than cost, so gain charged under section 67 | Nil |
| Cost of new land if sold within 3 years (14,00,000 - 10,00,000) | 4,00,000 |
What if I have not bought the new land before filing my return?
Section 83(2) gives a route for gains not yet reinvested when the return is due. Unspent gain must be deposited in a specified bank or institution under a scheme notified by the Central Government. The conditions are:
- The deposit must be made before filing the return and not later than the due date for filing under section 263(1).
- The proof of deposit must be submitted along with the return.
Under section 83(3), the amount already used to buy the new land plus the deposited amount is treated as the cost of the new land. The Act refers to a notified scheme; the files used for this guide do not describe the scheme itself, so check the notified scheme for the bank, account type and withdrawal procedure.
Worked example 3: partly spent, partly deposited
Assumptions: Suresh (individual) sells agricultural land on 10 August 2026 with a capital gain of Rs 20,00,000. Before his return is due he has bought new agricultural land for Rs 8,00,000 and deposits Rs 12,00,000 under the scheme. He then buys new land worth only Rs 5,00,000 more within the two years.
| Step | Amount (Rs) |
|---|---|
| Capital gain | 20,00,000 |
| Land bought before filing the return | 8,00,000 |
| Deposited under the scheme | 12,00,000 |
| Deemed cost of new asset at filing (section 83(3)) | 20,00,000 |
| Deposit used for a second purchase within two years | 5,00,000 |
| Deposit not utilised (12,00,000 - 5,00,000) | 7,00,000 |
| Charged under section 67 as income of the tax year in which two years from 10 August 2026 expire (section 83(4)(a)) | 7,00,000 |
Section 83(4)(b) allows Suresh to withdraw the unutilised amount in line with the scheme.
What is the timeline under section 83?
What does section 84 say about compulsory acquisition?
Section 84 covers a different situation. It applies to any assessee (not only individuals and HUFs) with capital gains from a compulsory acquisition under any law of land, a building, or a right in land or building. The asset must have formed part of an industrial undertaking belonging to the assessee and been used for that undertaking's business in the two years immediately before the transfer.
Within three years after the transfer, the assessee must buy other land or building (or a right in it) or construct a building, for shifting or re-establishing the undertaking or setting up another industrial undertaking. The charging rule is the same as section 83: the gain above the new asset's cost is charged under section 67, and the cost of the new asset is nil or reduced for a sale within three years of purchase or construction.
Worked example 4: industrial land acquired by the government (tax year 2026-27)
Assumptions: Kumar Fabrications, a partnership firm, has a factory plot compulsorily acquired under a law in November 2026. The plot was used for its business in the two preceding years. The capital gain is Rs 50,00,000. Within three years the firm constructs a new factory building to re-establish the unit, costing Rs 35,00,000.
| Step | Amount (Rs) |
|---|---|
| Capital gain | 50,00,000 |
| Cost of new building | 35,00,000 |
| Excess charged under section 67 (50,00,000 - 35,00,000) | 15,00,000 |
| Cost of new building if sold within 3 years of construction | Nil |
The deposit route in section 84(2) to (4) mirrors section 83, with one difference: unutilised deposit is charged in the tax year in which three years from the transfer expire.
Section 83 vs section 84: what is the difference?
| Section 83 | Section 84 | |
|---|---|---|
| Who | Individual or HUF | Any assessee |
| Asset transferred | Land used for agriculture by assessee, parent or HUF in the preceding 2 years | Land, building or right in them, of an industrial undertaking, used for its business in the preceding 2 years |
| Mode of transfer | Any transfer | Compulsory acquisition under any law |
| New asset | Other land for agriculture | Land, building or right in them, or a newly constructed building, to shift, re-establish or set up an industrial undertaking |
| Time to reinvest | 2 years after transfer | 3 years after transfer |
| Unused deposit taxed when | 2 years from transfer expire | 3 years from transfer expire |
| Deposit proof | With the return under section 263 | With the return under section 263 |
Real-life scenarios
Ravi's father farms, Ravi sells. Ravi's father cultivated a plot for years. Ravi inherits and sells it. Section 83(1)(a) counts use "by the assessee or his parent", so the plot can qualify even though Ravi himself never farmed it, provided it was used for agriculture in the two years before sale.
Meena delays the purchase. Meena sells her land in March and has not found a replacement by the time her return is due. She deposits the unspent gain in the specified bank under the notified scheme before the due date and attaches the deposit proof to her return.
Common mistakes
- Missing the deposit before the return due date. The deposit must be made before filing and no later than the section 263(1) due date. A deposit after that does not qualify under section 83(2)(b).
- Forgetting the proof. Section 83(2)(c) requires the proof of deposit to go with the return.
- Buying non-agricultural land. The new asset under section 83 must be land purchased for being used for agricultural purposes.
- Selling the new land within three years. Its cost is nil or reduced, so the earlier gain is brought back through the new sale.
- Claiming section 83 on rural agricultural land. Rural agricultural land is outside the capital asset definition in section 2(22)(iii), so there is no gain to defer; check the municipality and distance test first.
- Applying section 83 to a company or firm. Section 83 is only for individuals and HUFs.
- Counting the time wrongly. Section 83 gives two years and section 84 gives three, both counted from the date of transfer.
Quick reference
| Item | Section 83 | Section 84 |
|---|---|---|
| Look-back use period | 2 years before transfer | 2 years before transfer |
| Reinvestment window | 2 years after transfer | 3 years after transfer |
| Lock-in effect on new asset | 3 years from purchase | 3 years from purchase or construction |
| Deposit deadline | Before filing, not later than due date under s.263(1) | Before filing, not later than due date under s.263(1) |
Where this is in the Act
- Section 83: capital gains on transfer of land used for agricultural purposes (sub-sections (1) to (4)).
- Section 84: capital gains on compulsory acquisition of lands and buildings of an industrial undertaking.
- Section 67: the charging section for capital gains, to which the excess or unutilised amount is taken.
- Section 263(1): the return filing due date that fixes the deposit deadline.
How do CA firms track reinvestment deadlines for clients?
For a CA firm, the hard part is the calendar: the transfer date, the return due date for the deposit, and the two-year or three-year reinvestment cut-off. Finexo's practice management software can hold these dates against each client and remind you before they pass. It does not compute capital gains or make the deposit for you.
This article explains the Income Tax Act 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.
Frequently Asked Questions
Who can claim the agricultural land exemption under section 83?
Only an individual or a Hindu undivided family. The land must have been used for agricultural purposes by the assessee, a parent, or the HUF in the two years before the transfer, and other agricultural land must be bought within two years after the transfer.
What if I cannot buy new agricultural land before filing my return?
Deposit the unspent gain in a specified bank or institution under the notified scheme before filing and not later than the due date under section 263(1). Attach the proof of deposit to the return (section 83(2)).
What happens if I sell the new agricultural land within three years?
The cost of the new land is taken as nil (if the gain exceeded its cost) or reduced by the earlier gain, when computing the gain on that sale (section 83(1)(i) and (ii)).
What happens to deposited money I do not use within two years?
The unutilised amount is charged under section 67 as income of the tax year in which two years from the transfer expire. You may withdraw it under the scheme (section 83(4)).
Does section 84 apply to a company?
Yes. Section 84 applies to any assessee whose industrial undertaking's land or building is compulsorily acquired under a law, if a replacement is bought or built within three years to shift, re-establish or set up an industrial undertaking.
Is tax payable on sale of rural agricultural land?
Capital gains tax does not arise on agricultural land in India that is outside the urban limits in section 2(22)(iii), because it is excluded from the definition of capital asset. Urban agricultural land is a capital asset, and section 83 can defer the gain.
Does section 83 apply to both short-term and long-term gains?
Section 83(1) speaks of capital gains arising from the transfer of the land and does not restrict itself to long-term gains, so it covers either, if the use, purchase and time conditions are met.