Land acquisition act & tax planning

Madhu (Student) (26 Points)

15 August 2014

Please note before replying to query that I am good in Law but layman regarding taxation matters

General Information

On 1 Jan 2014 new act came into force that is “ The Right to Fair Compensation & Transparency in Land Acquisition Rehabilitation and Resettlement Act 2013” for sake of brevity hereinafter referred as LAAR Act.

Land Acquisition Act of 1894 was repelled.

Under Section 96 of LAAR act it is clearly mentioned – Exemption from Income tax, stamp duty and fee.

“ No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”

As per relevant section interpretation and guidance from book regarding LAAR act and present acquisition process following conclusion are drawn in book

The proceedings of Land acquisition which are going under Land Acquisition act all over India will continue as if this act , is not passed. The award should be given within 2 years from date of gazette notification.
The compensation will be calculated as per new Act and rules framed there under.
Old Land Acquisition act there was no exemption for Income tax. So author of my book clearly mentions that We have to pay Income tax.

Now our case

It is Ancestor property of 120 years old, specific area is going under road widening.
There were many owners to property , Some sold right to third party and we have challenged that in court and that compensation will be given court reference so that amount should not be considered as now for Income tax purpose. We will see when we receive it(it may take years)
Matter is about compensation of our part.
There are three person benefit for compensation from our family and they are closely link and have good understanding as well as each are dependant due to family circumstances.

Taxation related information

The Age of first person is 82 years Male, Second person 77 years female , Third person 32 years male
First person does not have any liquidity or it is neglible which is received as gift from some one , and he does not have source of income, may be little interest from some fixed deposit that too very low 10-20 thousand per year, No pension nothing. Except few immovable properties he does not have any investment but no rent he is getting. So no source of income from properties.

There was provision in Land acquisition Act & LAAR act also regarding apportionment which state

“ Where there are several persons interested , if such person agree in the apportionment of the compensation , the particulars of such apportionment shall be specified in the award and as between such persons the award shall be conclusive evidence of the correctness of the apportionment”

So I decided to give application (Please note it is just application with all signature no registration , stamp duty or any transfer of property) that Compensation should be given to 82 years old Male . Second compensation to be given to 77 years female. And neglible compensation should be given to 32 years male.

Specific Query

For taxation purpose. What should be purchase value I will elaborate my query

With eg. (don’t consider figures imp. here they are just for reference )

Value of land at time of purchase is 9 Lakhs , Out of that all three where owner of 3 Lakhs , Each person as 1 Lakh owner .
Due to apportionment , amount received in hands of 82 years male will be 60 lakhs (All compensation of remaining two transferred to 82 years male) .
What will be the purchase value of 82 years male ? Whether only 1 lakh or 3 Lakhs.
If the compensation is adjusted in figures like 40 Lakhs for 82 years male and 29 lakhs for 77 years female and 1 Lakh for 32 year male . Then how will be purchased value calculated ?

I am aware of Cost inflation index etc and calculation but was not sure what should be Purchase value if all compensation adjusted.

Since they are Old and require funds they are bit reluctant to invest in property or Bonds because some may need money for old age.

Whether Land acquisition apportionment is taxable in any other head ( like Income /gift from some one) ?. (Means 32 male and 77 years female tells Land acquisition officer to give compensation to 82 years male whether he will have to pay any other tax apart , as it may take income also or some thing else)

Where value of purchased property is not known then Govt. Valuers does property valuation as 1981 as purchase price for capital gain . Whether that year has changed for compensation which we will get in this financial year. ( I read some where it is has changed one year back to 2000 , but was not sure ) .If there is change in 1981 value then please give me some reference of circular or some thing so I will have confidence while telling my Govt. Value making person which year to take

I have some idea about compensation which we will get , but since compensation rules are not yet passed by legislative assembly in Maharashtra and draft rule suggest high compensation . I may think of taking some flat in name of 82 years male or 77 year female. So was thinking after getting money in 82 year saving account can he after some time before that financial year end transfer money to Capital Gain accounts scheme 1988 , So that I will in year time purchase some flat or settle capital gain issue of his. I have read the rules of withdrawal that it should be used for purchase of property and house construction only .