In this article, I have highlighted on the taxability of Sale of Land under the Income Tax Act.
Which land is taxable – Agriculture or Non-Agriculture. Also whether Rural or Urban Agriculture land is taxable.
And how it will be taxable whether as Capital Gain or as Business Income. Is there any tax benefit that can be claimed by investing in any land, bonds etc.
- Meaning of Capital Assets:
Property of any kind held by an assessee, whether or not connected with his business or profession, but does not include:–
Agriculture land in India which is not situated in any specified area.
It means that Agriculture land which is not situated in a specified area is not taxable under the Income Tax Act.
- Now what is Specified Area
Any area which is comprised within the jurisdiction of a municipality or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant population figures have been published before the first day of the previous year; or
Any area within the distance specified hereunder measured aerially from the limits of such municipality or cantonment board:
In the below-mentioned table, I have given 10 situations/examples as to whether the land will be treated as Capital Asset or not as per the conditions stipulated above.
The nature of taxability will depend on how the Land is held by the assessee i.e whether as Investment or Stock in Trade
- Capital Gain on Agriculture land held as Investment
Capital Gain on Sale of Agriculture land will be applicable when land is a capital asset and held as an investment and the gain will be taxable under the Capital Gain.
- Capital Gain on Agriculture land held as Stock In Trade
When agriculture land is held as stock in trade i.e. the assessee has a business of selling and purchasing properties like land, plot etc. the profit earned from the same shall be charged as business income under the head of Profit/Gains from Business or Profession.
- Applicability of Stamp Duty Value Concept while Selling Agriculture Land (Section 50C & 43CA)
If sale consideration received by the assessee is less than stamp duty value, stamp duty value shall be considered as sale consideration.
If assessee claims that stamp duty value is exceeding fair market value and that value is not disputed before stamp authority, assessing officer refers the case to valuation officer.
Valuation officer determines the value, if it exceeds stamp duty value, that value shall be ignored. If that value is less than stamp duty value, this value should be used as a fair market value.
Remember that these provisions will be applicable in both circumstances i.e. when agricultural land is held as investment (Sec 50C) and also when it is held as stock in trade (Sec 43CA).
In Budget 2018, the finance minister has given relief of 5% for the difference in agreement and Stamp duty value. So if the agreement value is less than the stamp duty value but the difference is less than 5% than the differential amount will not be considered as income.
Examples in relation to Section 50C
| Sr. No. | Actual Consideration | Stamp Duty Value | Value determined by valuation officer | Value to be adopted for Computing Capital Gain |
| 1 | 50 | 45 | No Valuation made | 50 |
| 2 | 50 | 75 | No Valuation made | 75 |
| 3 | 50 | 75 | 85 | 75 |
| 4 | 50 | 75 | 55 | 55 |
- There are various tax exemptions for Capital Gain Tax on Agriculture Land if is Long Term Capital Asset.
Deduction U/s 54B:
| Long Term Capital Gain – Exemption | u/s 54B | |
| a. | Who can claim exemption | Individual/HUF |
| b. | Eligible assets sold | Agriculture land which has been used by assessee himself or by his parents for agriculture purposes during last 2 yrs of transfer |
| c. | Assets to be acquired for exemption | Another agriculture land (urban or rural) |
| d. | Time limit for acquiring the new assets | 2 yrs forward |
| e. | Exemption Amount | Investment in the agriculture land or capital gain, whichever is lower |
| f. | Whether “Capital gain deposit account scheme” applicable | Yes |
Deduction U/s 54EC:
| Long Term Capital Gain – Exemption | u/s 54EC | |
| a. | Who can claim exemption | Any person |
| b. | Eligible assets sold | Any long-term capital assets |
| c. | Assets to be acquired for exemption | Bond of NHAI or REC |
| d. | Time limit for acquiring the new assets | 6 months forward |
| e. | Exemption Amount | Investment in the Bonds or capital gain, whichever is lower (Max.Rs. 50Lacs)* |
| f. | Lock-in period | 3 years** from the date of acquisition of NHAI or REC Bonds. |
| f. | Whether “Capital gain deposit account scheme” applicable | Not Applicable |
*The maximum amount of investment made during the financial year in which transfer is made and in the subsequent year does not exceed Rs. 50 Lakhs.
** In budget 2018, the lock-in period is extended to 5 years w.e.f. from 1-4-2019.
Deduction u/s 54F:
| Long Term Capital Gain – Exemption | u/s 54F | |
| a. | Who can claim exemption | Individual /HUF |
| b. | Eligible assets sold | Any long term asset (other than a residential house property ) provided on the date of transfer the taxpayer does not own more than one residential house property (except the new house) |
| c. | Assets to be acquired for exemption | Residential house property |
| d. | Time limit for acquiring the new assets | Purchase :1 year back or 2 year forward, Construction: 3 year forward |
| e. | Exemption Amount | Investment in the new assets / Net Sale consideration X capital gain |
| f. | Whether “Capital gain deposit account scheme” applicable | Yes |
Article by
CA Vishnu Thard