Income Tax on sale of agriculture land : Analysis

By | May 30, 2016
(Last Updated On: May 30, 2016)

Income Tax on sale of agriculture land

sale of agriculture land

Sale of agriculture land situated in Rural Area

Following land is agriculture land in rural area and is not capital asset as per section 2(14). Thus no tax is payable on sale of agriculture land :-

  1. Land situated in area within the jurisdiction of a municipality (whether known as municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board  where population is less than 10000.
  2. Land situated in any area other than the following (pls refer table below) . In the  following cases (mentioned in the table) , Land will be called capital asset and tax will have to be paid on sale of agriculture land (if sale consideration not invested in other agriculture land ). However if the land does not fullfil the following population and distance criteria than it will be rural land and sale of agriculture land will not attract any tax. E.g If the Population of area is  say 50000 and land is situated after 2 kilometer from the local limits of any municipality or cantonment board than  sale of agriculture land will not attract any tax as it will fall outside the scope of Capital asset u/s 2(14).

Population limit and distance of land from municipality or a cantonment board and  is as under:

Population ( as per last preceding census)            Land in Any area 

More than 10000 and Less than 1 Lakh                      Within 2 kilometers  from the local limits of                                                                                                  any municipality or cantonment board

More than 1 Lakh and Less than 10 Lakh                      Within 6 kilometers  from the local limits of                                                                                             any municipality or cantonment board

More than 10 Lakh                                                             Within 8 kilometers  from the local limits of                                                                                                 any municipality or cantonment board

Note :Distance will be measured aerially.

Sale of agriculture land situated in Non Rural Area

sale of agriculture land situated in Non rural area would attract the capital gain tax . Capital gain in such cases would be computed as Follow.

Full value of consideration :                                                                XXX

Less Cost of Acquisition :                                                                    XXX

(Indexation benefit if held for more than 3 years)

Less Cost of Improvement                                                                   XXX

(Indexation benefit if held for more than 3 years)

                                                                                ________________________

Capital Gain on sale of Agriculture land

Tax on this capital gain on sale of agriculture land can be saved if capital gain is invested in the purchase of another agriculture land (whether in Rural or non rural area)  as per section 54B

TDS on sale of agriculture

There is no TDS on sale of agriculture land . read No tds on sale of agricultural land

Capital Gain exemption on Sale of agriculture land situated in Non Rural Area

Tax on capital gain on sale of agriculture land in non rural area can be saved if capital gain is invested in the purchase of another agriculture land (whether in Rural or non rural area) as per Section 54B . Conditions to be met under Section 54B for claiming exemption from Capital Gains

  • The exemption is available to an Individual or an HUF.
  • The land which is being sold must have been used for agricultural purposes by the individual or his parents or by the HUF for a period of 2 years immediately before the date of transfer.In case of HUF the land should be used by any member of HUF.
  • The asset transferred should be agricultural land. The land may be a long-term capital asset or short-term capital asset.
  • Another land for agricultural purpose should be purchased within a period of 2 years from the date of transfer of old land.
  • The new agricultural land which is purchased to claim capital gains exemption should not be sold within a period of 3 years from the date of its purchase.
  • In case you are not able to purchase agricultural land before the date of furnishing of your Income Tax Return – the amount of capital gains must be deposited before the date of filing of return in the deposit account in any branch (except rural branch) of a public sector bank or IDBI Bank according to the Capital Gains Account Scheme, 1988. Exemption can be claimed for the amount which is deposited.
  • If the amount which was deposited as per Capital Gains Account Scheme was not used for purchase of agricultural land – it shall be treated as the capital gain of the year in which the period of 2 years from the date of sale of land expires. Of course, in this case you can withdraw these amounts for any use you may want.

Amount of Exemption

  • If the cost of the new agricultural land purchased is more than the amount of capital gains, entire capital gains are exempt.
  • If the cost of the new agricultural land purchased is less than the amount of capital gains, Capital Gains less cost of the new agricultural land = capital gains chargeable to tax

Thus we can say that Exemption under section 54B will be lower of the following:

• Amount of capital gains arising on transfer of agricultural land; or

• Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme (discussed later)].

Illustration-1

Mr. Raja purchased an agricultural land in April, 2010. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in July, 2015 for Rs. 8,40,000. Capital gain arising on sale of land amounted to Rs. 1,00,000. Can he claim the benefit of section 54B by purchasing another agricultural land?

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land (may be long-term or short-term). This benefit is available only to an individual or a HUF. The land should be used for agricultural purpose at least for two years. In this case, all the conditions of section 54B were satisfied and, hence, Mr. Raja can claim the benefit of section 54B by purchasing another agricultural land within the time-limit specified under section 54B.

Illustration -2

Mr. Kamal purchased an agricultural land in April, 2012. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in May, 2015 for Rs. 18,40,000. Capital gain arising on sale of land amounted to Rs. 2,00,000. Can he claim the benefit of section 54B by purchasing another agricultural land?

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land (may be long-term or short-term). This benefit is available only to an individual or HUF. The land should be used for agricultural purpose for at least two years. In this case, all the conditions of section 54B are satisfied and, hence, Mr. Kamal can claim the benefit of section 54B by purchasing another agricultural land within the time-limit specified under section 54B.

Illustration-3

Raja HUF purchased an agricultural land in June, 2012. Since the date of purchase, the land was being used for agricultural purpose. The land was sold in July, 2015 for Rs. 28,40,000. Capital gain arising on sale of land amounted to Rs. 8,00,000. Can the HUF claim the benefit of section 54B by purchasing another agricultural land?

Exemption under section 54B can be claimed in respect of capital gains arising on transfer of capital asset, being agricultural land (may be long-term or short-term). This benefit is available only to an individual or HUF. The land should be used for agricultural purpose for at least two years. In this case all the conditions of section 54B are satisfied and, hence, Raja HUF can claim the benefit of section 54B by purchasing another agricultural land within the time-limit specified under section 54B.

Illustration-4

Mr. Kumar purchased gold in April, 2010 and sold the same in July, 2015 for Rs. 8,40,000. Capital gain arising on sale of gold amounted to Rs. 1,00,000. Can he claim the benefit of section 54B by purchasing agricultural land from the capital gain of Rs. 1,00,000?

 Exemption under section 54B can be claimed in respect of capital gains arising on transfer of a capital asset, being agricultural land (may be long-term or short-term). In this case the capital asset is gold, i.e., other than agricultural land and, hence, the benefit of section 54B is not available.

Capital Gain on Agriculture land compulsorily acquired

As per section 10(37), no capital gain would be chargeable to tax in case of an individual or HUF if agricultural land is compulsorily acquired under any law and the consideration of which is approved by the Central Government or RBI and received on or after 01-04-2004.

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