The announcement by Finance Minister Arun Jaitely to exempt from capital gain tax people who gave their land for construction of Andhra Pradesh's new capital Amaravati has met a key demand of the state.

"The new capital for Andhra Pradesh is being constructed by innovative land-pooling mechanism without use of the Land Acquisition Act. I proposed to exempt from capital gain tax, persons holding land on 2.6.2014, the date on which the state of Andhra Pradesh was reorganised, and whose land is being pooled for creation of capital city under the Government scheme," Jaitley said in his speech on Wednesday.

The ruling Telugu Desam Party (TDP), an ally of the BJP-led National Democratic Alliance government at the Centre, has hailed the exemption.

Union Minister of State for Science and Technology YS Chowdary thanked Jaitley for the announcement in a tweet on behalf of farmers.

According to the state government, farmers have voluntarily come forward to give 35,000 acres of land worth about Rs 40,000 crore under the Land Pooling Scheme (LPS) for the upcoming state capital.

Under LPS, the largest exercise of its scale in the country, 24,000 farmers have given their lands.

The authorities have almost completed the process of handing over developed residential and commercial plots to farmers in return for their lands.

For every acre of irrigated land, the farmers have been given a 1,000 sq yard residential and a 450 sq yard commercial plot, while every acre of dry land, it is a 1,000 sq yard residential and a 250 sq yard commercial plot.

Capital gains tax exemption is expected to benefit the farmers to the tune of around Rs 10 lakh to Rs 30 lakh, depending on the value of their plots.

Jaitley, during his visit to Amaravati last year, had promised the exemption.