17 May 2011
What is the tax implications on compensation received for agriculture land acquired by UP State Govt. in FY 2010-11 under Land Acquisition Act? Please consider following facts:
1. The land in question falls within 8 Kms of municipal corporation limits. 2. The land is an ancestral property transferred through generations and hence, original purchase cost is unknown.
If compensation is subject to capital gains, how does one compute it given that cost of purchase is unknown?
17 May 2011
1.Section 10(37) exempts long-term capital gains arising from the transfer of an urban agricultural land in certain cases from the assessment year 2005-06 onwards. 2.An individual or a Hindu undivided family where they make gains from transfer of agricultural land by way of compulsory acquisition, where the compensation or the enhanced compensation or consideration, as the case may be, is received on or after 1-4-2004. 3.Conditions precedent for exemption are as under : (i) The gain shall arise to an individual or HUF; (ii) The gain can be short-term or long-term; (iii) The gain should arise from transfer of agricultural land situated in any area referred to in section 2(14)(iii)(a) or 2(14)(iii)(b). (iv) Such land should have been used for agricultural purposes by the HUF/Individual or parent of individual for a period of two years immediately preceding the date of transfer. (v) Transfer of agricultural land shall be 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. (vi) Any such gain should have arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004. It may be noted that the condition is as to receipt of compensation. Therefore, in cases where compulsory acquisition has taken place before 1-4-2004 but compensation is received on or after that date still the exemption would be available subject to fulfilment of other conditions. The facts given by you appears to fulfill all the above-said conditions therefore, the gain will be exempt
As the land in question violate the condition 'The gain should arise from transfer of agricultural land situated in any area referred to in section 2(14)(iii)(a) or 2(14)(iii)(b)' as it falls within 8 Kms of municipal limits, will it be subject to capital gains then? As original cost of purchase is unknown, how does one compute capital gains?
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