Exemption u/s 10(37) - Capital Gains in case of Agriculture Land

• Section 10(37) of the Act prescribes exemption from income by way of compulsory acquisition of agriculture land situated in an urban area. Urban area means an area as referred to in section 2(14) of the Act. 

• This exemption is available from AY 2005-06

• Exemption is only available to Individual and HUFs. 

• Exemption will be given in respect of income chargeable under the head Capital Gains. This means that any person transferring an urban agriculture land as stock in trade will not be eligible to claim this exemption. 

• Another pre requisite is that the assessee (Individual or his parent or HUF) should have used this land for agricultural purposes during the period of 2 years immediately preceding the date of transfer. 

• If all the above conditions are satisfied, then compensation received whether original or enhanced, on compulsory acquisition of such asset shall be exempt from tax under this section. 

• It is notable that this exemption is not available on transfer of rural agriculture land. It is so because rural agriculture land is not considered to be a capital asset, and hence no capital gains tax liability arises on transfer of rural agriculture land.