04 January 2014
wats is the procedure for conversion of non agricultural land into a company ??? What will be the holding limit?? How tax is calculated ??
14 July 2024
Converting non-agricultural land into a company typically involves several steps and considerations, including legal, regulatory, and tax aspects. Here’s a general outline of the procedure, holding limits, and tax implications in the context of India:
### Procedure for Conversion of Non-Agricultural Land into a Company:
1. **Incorporation of a Company**: - Decide on the type of company (e.g., private limited, public limited) based on your requirements and objectives. - Prepare the necessary documents including Memorandum of Association (MOA) and Articles of Association (AOA). - File incorporation documents with the Registrar of Companies (RoC) along with applicable fees.
2. **Transfer of Land to the Company**: - Once the company is incorporated, transfer the ownership of the non-agricultural land to the company. - This involves executing a sale deed or transfer deed as per the applicable state laws. - Pay stamp duty and registration charges on the transfer of land, as required by state regulations.
3. **Compliance and Approvals**: - Obtain necessary approvals from local authorities, such as change of land use (if required), building permits, environmental clearances, etc. - Comply with all applicable laws and regulations governing land use and development in the specific location.
4. **Tax Considerations**: - **Stamp Duty**: Pay stamp duty on the sale deed or transfer deed executed for transferring the land to the company. Stamp duty rates vary by state and depend on the value of the property. - **Capital Gains Tax**: If there is a gain on the transfer of land (i.e., if the transfer value exceeds the cost of acquisition), capital gains tax may be applicable. The tax rate and calculation will depend on whether the land was held as a capital asset or as stock-in-trade. - **Goods and Services Tax (GST)**: GST may be applicable on the sale of land depending on various factors, including whether the land qualifies as agricultural land or not, and the nature of the transaction (e.g., sale, lease).
### Holding Limit:
- There is no specific limit on holding non-agricultural land for a company under Indian law, unless specified by state-specific land ceiling laws. However, it’s important to comply with applicable land use regulations and local laws governing ownership and use of land.
### Example of Tax Calculation (Capital Gains):
- **Cost of Acquisition**: Rs. 50,00,000 - **Sale Consideration**: Rs. 75,00,000 - **Capital Gains** = Sale Consideration - Cost of Acquisition = Rs. 75,00,000 - Rs. 50,00,000 = Rs. 25,00,000
- **Tax on Capital Gains**: If the land was held for more than 2 years, it qualifies for long-term capital gains tax. Long-term capital gains tax is currently 20% with indexation benefits.
- **Indexation**: Indexation adjusts the cost of acquisition for inflation using the Cost Inflation Index (CII) published by the Income Tax Department. It reduces the taxable capital gains.
- **Net Tax Payable**: Calculate the tax payable based on the applicable rate (20% in this case) on the indexed capital gains amount.
### Conclusion:
Converting non-agricultural land into a company involves legal procedures for incorporation, compliance with land use regulations, and tax implications such as stamp duty and capital gains tax. It’s advisable to consult with legal and tax professionals to ensure compliance with all regulatory requirements and to optimize tax efficiency based on your specific circumstances.
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