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Capital gain on sale of agricultural land

Vishal (Article Asst.) (95 Points)

02 December 2016

Hi there,

Is sale of agricultural land is liable to capital gain tax? Further if agricultural land is sold for construction of residential / commercial property (I dont know how they gonna determine whether land has been sold for what purpose) then whether such gain on sale of such agricultural land is liable to capital gain tax? The same stand is taken by ITO in one of my client's case. Please reply at the earliest.

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6 Replies

Wilson Dsouza (CA Practice ) (31 Points)
Replied 02 December 2016

any exprts repl pls

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177852 Points)
Replied 03 December 2016

1) For an agricultural land to be exempt from definition of Capital Asset, it should be situated beyond the Specified Area.

Specified Area means: a) 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; or b) Any area within the distance specified hereunder measured AERIALLY from the limits of such municipality or Cantonment Board: Population more than 10,000 upto 1 lakh, distance from limits is 2 kms. Population more than 1 lakh upto 10 lakh, distance from limits is 6 kms. Population more than 10 lakh, distance from limits is 8 kms.

Thus, in your case if the said land is not rural agricultural land and thus a capital asset, and hence liable for capital gain

2) Usually the developers convert it to Non-agricultural usage, before transferring the land in their name, and thus the land transferred from the farmer is non-agricultural land and hence liable for capital gains.

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Vishal (Article Asst.) (95 Points)
Replied 03 December 2016

Thanks for your reply Sir,

But said land is agricultural land and is situated in rural area. Also at the time of transfer that land was agriicultural land and later on it was converted into NA land by developer.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177852 Points)
Replied 03 December 2016

When an assessee transfered any land which was RURAL AGRICULTURAL LAND on the date of transfer/sale deed, its not capital asset, and hence not liable for capital gain. The transferee may utilize it for any other purpose, its not transferor's liability.

CA Pallav Singhania (IT System Auditor) (33262 Points)
Replied 04 December 2016

Capital gain on sale of agriculture land is exempt if land is situated in rural area.

Remember that capital gain on sale of agriculture land will be applicable when land is capital asset and held as investment. If land is not capital asset, capital gain will not be charged.

When agriculture land is held as stock in trade (The assessee has business of selling and purchasing properties like land, plot etc.), capital gain tax will not be applicable but the profit should be charged as business income under head of ‘ profit and loss from business or profession’ head.