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
Comments
mahesh
June 25, 2019we have sold inherited agricultural land at village kherli which was given to my father in Jagir about 60 years back in 1957 and the land is situated about 4.5 kms away from dausa municipality.the population of dausa city is about 88000 as per 2011 census.can you let me know whether it will be treated as capital asset for the purpose of long term capital gain if the land is sold by us(succeesors).i have heard that supreme court has pronounced decisions that the land received under jagir is not to be treated as capital assets as its cost of acquisition is intdeterminable.please guide us.
CA Ashwin Jain
July 2, 2019As per definition of the term Capital Assets contained in section 2(14) of Income Tax Act,1961 agricultural land should be termed Capital Assets only when it is situated-in specified area and satisfies the clauses of population contained therein. As per your query raised it is situated within 4.5 km away from dausa municipality and population is only 88000 hence population is less than 1 lakh therefore above mentioned land cannot be termed as Capital Asset and therefore it is not chargeable to tax. Further as regards the Judgement of Honorable supreme court is concerned, we can have a detailed discussion on the same on call or in person.
ANUPAM KUMAR VARMA
October 31, 2019Sir, If an agricultural land situated in Tehsil -Khandela, Sikar and just adjoining(attached) to the limits of Municipality was sold by assessee in F.Y. 2011-12 can be treated as Capital assests. If Yes then how and if no then why. Please help
DEVARAJ PMC
February 15, 2020I have sold my agricultural land which is situated 30 kms away from the Municipality Jurisdiction and I am not going to buy another land, My query is whether it is taxable under capital gain or exempt?, Please help me in this regard, thanks
Gst Return Filing
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Mandeepsinh Jadeja
September 18, 2020I have purchased agriculture land in the year 2007-08 of Rs. 4,20,000/-. It is in very remote area and very less populated. And I have sold such land in 2017-18 in 1,05,00,000/- after converting such agriculture land to non-agriculture as per the requirement of purchaser. And after that I have invested such proceedings in rural agriculture land in the same year. Whether am I liable to pay any capital gain? As agriculture land is exempted from Capital gain Tax.