I personal some farm land for the previous 30 years. How can I save tax on the sale of this land? Can I profit from shopping for a residential property?
—Name withheld on request
As per the provisions of the Income Tax Act 1961, agricultural land will not be thought-about as a capital asset, except it satisfies the next situations:
a)Land is located in any space inside the jurisdiction of a municipality or a cantonment board having inhabitants of not lower than 10,000; or
b)Land is located in space inside the specified distance (ranges from 2 km to eight km), measured aerially, from the native limits of any municipality or cantonment board (with inhabitants starting from 10,000 to 1 million).
Based on the restricted information obtainable, it’s not clear whether or not the agricultural land owned by you qualifies as a capital asset or not. In case, the agricultural land doesn’t fulfill the aforesaid situations, then the identical will not be thought-about as capital asset, and good points arising from its sale shall not be topic to tax.
In case the agricultural land qualifies as a capital asset, the identical shall be thought-about as long-term capital asset (LTCA), because the interval of holding is greater than 24 months and the sale earnings of such agricultural land might be topic to long-term capital achieve (LTCG). Further, one could declare the next deductions from resultant LTCG:
Section 54B: Where the LTCG arises from the switch of land which was getting used for agricultural functions and the assessee has, inside a interval of two years after that date, bought some other land for agricultural functions, then a proportionate deduction might be obtainable to the extent of LTCG invested as prescribed. Further, in case the LTCG couldn’t be invested for buy of the brand new land until the date of furnishing the return below part 139 of the Act, then such quantity may be deposited earlier than the due date of submitting tax return, in a specified Capital Gain Account Scheme (CGAS) account with approved banks and utilized within the method prescribed, to avail of the deduction.
Section 54EC: LTCG to be invested in notified bonds having prescribed situations, inside 6 months from the date of switch of LTCA. Such capital achieve quantity invested shall be eligible for exemption, as much as a most of ₹50 lakh throughout the monetary 12 months wherein LTCA is bought/ subsequent FY.
Section 54F: Net sale proceeds of the agricultural land are invested in buy or development of one other property inside the specified timelines, supplied that the individual doesn’t maintain a couple of residential property, along with the brand new home, on the date of sale of LTCA. Where all the web sale proceeds will not be invested and solely an element quantity is invested, the deduction u/s 54F might be obtainable just for the proportionate LTCG.
Further, in case the online sale proceeds couldn’t be invested for buy or development of recent home until the date of furnishing the return, then such quantity may be deposited in a specified CGAS checking account with approved banks and utilized within the method prescribed, to avail of the deduction.
Parizad Sirwalla is accomplice and head, world mobility companies, tax, KPMG in India.
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