In some
cases, when you sell Agricultural Land – it may be entirely exempt from income
tax or it may not be taxed under the head Capital Gains or it may be taxed
under the head Capital Gains as discussed under:
[1] Agricultural land in Rural Area in India is not considered a capital asset - not taxable under the head Capital Gains [Section 2(14)(iii)(a) or Section 2(14(iii)(b)]
Agricultural
land in Rural Area in India is not considered a capital asset. Therefore any
gains from its sale are not taxable under the head Capital Gains.
Text
of Section 2(14)(iii)(a) & (b)
(iii) agricultural land
in India, not being land situate—
(a) in any area which is comprised within the jurisdiction of a
municipality (whether known as a municipality, municipal corporation, notified
area committee, town area committee, town committee, or by any other name) or a
cantonment board and which has a population of not less than ten thousand ; or
(b) in any area within the distance,
measured aerially,—
(I) not being more than
two kilometres, from the local limits of any municipality or cantonment board
referred to in item (a) and
which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the
local limits of any municipality or cantonment board referred to in item (a) and which has a population of more
than one lakh but not exceeding ten lakh; or
(III) not being more than eight
kilometres, from the local limits of any municipality or cantonment board
referred to in item (a) and
which has a population of more than ten lakh.
Explanation.—For the purposes of
this sub-clause, "population" means the population according to the
last preceding census of which the relevant figures have been published before
the first day of the previous year;
Definition of Rural
Area (From Assessment year : 2014-15)
Any area which is
outside the jurisdiction of a municipality or cantonment board, having a
population of 10,000 or more is considered a rural area. Also, it should not
fall within a distance (to be measured aerially) given below – (population is
as per the last census) :
|
Distance
|
Population
|
|
Within 2 kms from local limit of
municipality or cantonment board
|
If the population of the
municipality/cantonment board is more than 10,000 but not more than 1 lakh
|
|
Within 6 kms from local limit of
municipality or cantonment board
|
If the population of the
municipality/cantonment board is more than 1 lakh but not more than 10 lakh
|
|
Within 8 kms from local limit of
municipality or cantonment board
|
If the population of the
municipality/cantonment board is more than 10 lakh
|
[2] Capital gain on Compulsory Acquisition of
urban agricultural land is exempt [Section 10(37)]
Exemption from Capital gains is
provided in Section 10(37) of the Act from sale of Agricultural lands arising
to individual assesses or to HUF even if the lands are situated within the area
specified in item (a) and (b) of sub-clause (iii) of clause (14) of Section 2.
Text of
Section 10(37)
(37) in the case of an assessee, being an
individual or a Hindu undivided family, any income chargeable under the head
“Capital gains” arising from the transfer of agricultural land, where—
(i) such land is situate
in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2;
(ii) such land, during the period of two years immediately
preceding the date of transfer, was being used for agricultural purposes by
such Hindu undivided family or individual or a parent of his;
(iii) such transfer is by way of compulsory acquisition under any
law, or a transfer the consideration for which is determined or approved by the
Central Government or the Reserve Bank of India;
(iv) such income has arisen from the compensation or
consideration for such transfer received by such assessee on or after the 1st
day of April, 2004.
Explanation.—For the purposes
of this clause, the expression “compensation or consideration” includes the
compensation or consideration enhanced or further enhanced by any court,
Tribunal or other authority;
In
other words, full capital gain on compulsory acquisition of urban land is
exempt. Provided :
(i) The agricultural land should belong to an individual or Hindu Undivided
(i) The agricultural land should belong to an individual or Hindu Undivided
Family (HUF).
(ii) The capital gain arises from
compensation or the enhanced compensation or consideration, as the case may be,
should be received on or after 31.03.2004.
(iii) He or it owns an agricultural land (in
urban area) which is situated in area specified in sections 2(14)(iii)(a)
(iv) There is a transfer of the agricultural
land by way of compulsory acquisition under any law or the consideration for
transfer is determined or approved by
the Central Government (not by a State Government) or Reserve Bank of India.
(v) Where
the compulsory acquisition has taken place before 01.04.2004 but the
compensation is received after 31.03.2014, it shall be exempt.
[3]
Capital gain on transfer of land used for agricultural purposes not to
be charged in certain cases [Section
54B]
The agricultural
land situated in the area specified in item (a) and (b) of sub-clause (iii) of
clause (14) of Section 2 is a capital asset.
However, deduction
under Section 54B of the Income Tax Act provided from the capital gains arising
from sale of such agricultural land. To claim
exemption under Section 54B for Capital Gains arising on the sale of
Agricultural Land, the following conditions are required to be satisfied:-
(i)
Exemption
under Section 54B can only be claimed by an Individual or by HUF.
(ii)
The
new agricultural land purchased may either be Rural Land or Non Rural Land.
(iii)
The
asset transferred should be agricultural land.
(iv) The land may be a long term capital asset or a
short term capital asset.
(iv) The agricultural land should be used
by the Individual or his parents for agricultural purpose at least for a period
of 2 years immediately preceding the date of transfer. In case of HUF, the land
may be used by any member of the HUF. In other words, agricultural operations
are carried out on such land for two years preceding the year in which the land
is sold
If the cost of new
agricultural land purchased within two years of sale of such land is more than
the capital gain, lesser deductions are provided if the cost of the
agricultural land purchased within 2 years of sale of the original agricultural
land is less than the capital gains arising to the assessee.
[4] Agricultural land are considered as capital
asset - Liable for capital gain tax [Section 45(1)]
Following agricultural land are
considered as capital asset :-
Section 2(14)(iii)(a)
: Agricultural land situated within the jurisdiction of municipality or
cantonment board and having a population of 10,000 or more;
Section 2(14)(iii)(b) : Agricultural land situated within the
following distance from the local limits of Municipality or Cantonment Board to
be measured aerially.
|
Distance
of agricultural land from Municipality or Cantonment Board to be measured
aerially
|
Population
of the Area
|
|
Upto 2 kilometres
|
Between
10,001 to 1,00,000
|
|
Upto 6 kilometres
|
Between
1,00,001 to 10,00,000
|
|
Upto 8 kilometres
|
Exceeding
10,00,000
|
Therefore, any agricultural land situated within the above area and held as investment is a capital asset liable for capital gain tax.
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