Capital Gains on Agricultural Land
- 24 Comment
Introduction
In my previous article I have written about the basics of capital gains and how the capital gains are taxed. That is only the basics and many scenarios will arise when you are facing it in the real life. In this article I will be writing about the capital gains related to selling the agriculture land. There is special case while you are selling the agriculture land. If you have any doubts please post it in the comments section. Also you can subscribe to our future articles here.
Is agriculture land capital asset?
As we know the capital gains are applicable only when you are selling the capital assets. When you are selling the agricultural land, first you have to decide if it is falling under the capital assets, if it is capital assets then you have to pay the tax for the capital gains as we mentioned in this article.
- The following points are important to consider while deciding whether the agricultural land is coming under the capital assets: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 according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or
- In any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.
In simple terms the above statement means,
If the land is situated under municipalty area where the population is above 10000 or the distance from the municiplaty to the specified land is less than 8 KM, then the land is not agricultural land.
Tax on Agricultural Land
Once if the above conditions met, you have decided that the land is agricultural land. Then you need not pay any tax for the sale on your agricultural land. The profit from the agricultural land is completely tax free. Because the land is not falling under the capital assets as the law defines the acpital assets.
Update:
In nut shell , one can claim exemption form capital gains on Sale of Agriculture Land by buying Agriculture land if the agricultural land which was was being used by the assessee or a parent of his for agricultural purposes at least two years preceding the year in which transfer of the land took place if
the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, capital gain to the extent utilised for buying the new agriculture land shall be given.
Summary
In this article I have written about the special case on dealing the capital gains for agricultural land. In my future article also I will be coming up with some interesting facts on the capital gains. Thank you for reading the article!!! Please post your comments in the comments section.
You can subscribe to our future article here.
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24 Comments on this post
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D. SUNDAR said:
Does Ajjanahalli, Tavarekerre Hobli, Bangalore South, Karnataka, comes under Agricultural land or does it come under Urban area?
June 22nd, 2009 at 5:07 am -
Manoj said:
A agriculture land was purchased by me during 7/2008 costing Rs. 0.70 lacs. During 9/2009 the same was sold at an cost of Rs. 2.99 lacs. Whether the shot term capital gain of 2.29 lacs earned by me is taxable and if taxable on what ratio. ALthough IMMEDAIATELY AFTER CAPITAL GAIN another agriculture land has also been purchased by me during 9/2009 by investing the entire capital gain & capital amount.
October 2nd, 2009 at 11:21 pm -
krishnas said:
Hello Manoj,
Since you have purchased the another agriculture land for the same amount, there won’t be any tax on the capital gains.
Thanks,
KrishnaOctober 3rd, 2009 at 12:12 am -
Raj Bansal said:
I purchased an agricultural land in 2008 for Rs. 30 Lacs. Sold the land in October 2009 for 80 Lacs. I am buying another land for Rs. 80 Lacs in December 2009. Will i be exempted from Short Term Capital Gain Tax? The land that i sold in 2009 was being used by us for agriculture purpose and it comes in Municipal Limits of Bhopal.
November 8th, 2009 at 10:53 am -
Raj Bansal said:
Dear Krishna,
You have mentioned to MANOJ that he will not have to pay capital gain tax, but his case is exactly like mine where the capital gain arising is short term. Please clarify. As my CA says that I will have to pay 30% tax on the amount of capital gain, as its short term.
November 8th, 2009 at 10:56 am -
krishnas said:
Hello Raj Bansal,
As you told the land is used for the agriculture purpose and reinvested to buy the another agriculture land, it seems there is no need worry about the capital gains tax. But, you can consult with your CA for more details. It involves many other facts like municipal locality, etc. to decide the capital asset.
Thanks,
KrishnaNovember 9th, 2009 at 8:51 am -
kamini said:
i have one ques to ask i.e….
mr. jp was an engineer by profession after comleting his graduation he started business of cement manufacturing and road & highway development and earned considerable profit. in late 90s he established bankin finance co. in india and abroad. in yr 2007 GOI decided to nationalised the banking finance co under the pvt ownership. he received a lumpsum compensation of Rs 20 cr. from GOI for business undertaking existing in india. but the banking undrtaking abroad was left under the ownership of mr. JP. Due to eco recession in 2007 mr. JP was hit hard and was compelled to sell his bankin business in USA for 1cr. he was having 10 acres of agricultural land in India and 2 residential houses as well. he sold one of his residential house and agricultural land in dec 2007. he however purchased other residential house in the name of his wife in JAN 2009 and 7 acres of agricultural land in name of his son & grandson in feb 2009
he was served notice by the assessee officer to pay capital gains if any arising out of such sale and purchase of agricultural land & residential house & business undertaking
however the Mr. JP contended that he is not required to pay any tax with respect to agricultural land and residential house and they were entitled to benefit of Sec 54 b of the act. With respect to banking undertaking he contended that since computation of capital gains is not possible so no tax will be payable.
but the revenue was of the view that capital gins tax is payable with respect to all three transactions.So my question to u is WHETHER CAPITAL GAINS TAX IS PAYABLE ON ALL THREE TRANSACTIONS OR NOT. IF YES THEN WHY
OR ARE THEY EXEMPTED UNDER THE BENEFITS OF SEC 54.PLEASE DECIDE THE CASE FROM THE SIDE OF THE REVENUE
November 25th, 2009 at 5:37 am -
om said:
suppose i have purchased agri.land falling within eight k.m. from muncipality limits in march 2008 having govt.value rs.4900000 but purchase price is rs. 1850000+250000 registration stamp papers etc exp. and same agri.land sold in april 2008 having govt.value rs.5800000 but selling price is rs 2000000 what will be the computation of short term capital gain & tax liability in this case?
November 27th, 2009 at 12:35 am -
CP Mittal said:
Dear Krishnas,
Thanks for putting wonderful specific article.
I purchased an agriculture land in 2004 and sold in 2007. The land was not converted into industrial land and used for agriculture purpose only.
I put up a small vermicomposting plant in that area in 2004 and took PMT from DIC (District Industries Centre) and made sales of about only Rs. 20000/- of vermicompost.
Now department is using this plea that land was used for commercial/industrial purpose and is terming it as capital asset.
Can you please with specific section of IT rules clarify as under:-
1) Is vermicoposting/vermiculture Agriculture Activity?
2) On what basis can I fight my case with Dept.December 5th, 2009 at 1:36 am -
jayalakshmi said:
I am going to sell the resedential land out of chennai city is that capital gain is taxable please explain
December 11th, 2009 at 3:12 am -
Amit Jindal said:
I sold Agriculture land about 4 yrs after I bought it. It comes within Municipal Limits, so my sale is liable for LT Capital Gain Tax. Now can I buy a residential property from these gains?
January 10th, 2010 at 5:41 am -
Raghav said:
Hello Krishna,
I bought a non converted land in Mar’ 05 and selling now in Jan’ 10. This land is clearly 25+Kms from Blr city station. Please advice how do I confirm if this qualifies for Capital Gain tax or not?? thanks in anticipation.
Best Regards
January 21st, 2010 at 1:14 am -
krishnas said:
Hello Raghav,
You have to visit the local municipality office and confirm with them. We can not decide with out consulting them.
Thanks,
KrishnaJanuary 21st, 2010 at 7:50 pm -
sunil ratilal shah said:
i sold agriculture land on 31st January 2010 for 17 lakhs. this land was in HUF . now the money is in HUF saving account. The land was in grampanchayat area 3 kms away from the village. Is it taxable under capital gain? Can i give this amount as gift to my son and purchase a house in his name in next 1-2 years to come. what will be the tax implications
Thanks Sir please advise at earliest on email address.March 16th, 2010 at 12:22 pm -
SANTOSH JAIN said:
Resp Sir/Madam,
Have a GOOD Day
1)Pl advise us if agriculture land as been acquired by govt and special land acquisition officers in collector office dept as deduted tds @10% on total payment under which sectionthis amount is exempt from capital gain
2) Pl also advise us our agriculture land as acquired by govt as same above case but the land belongs five members of family but acquisition officer has taken a letter and given one cheque on first member and deducted ful tds on his name wherether first member is libale to pay tax or is exempt from capital gain
thanking you
santosh p jainApril 18th, 2010 at 12:22 pm -
CA Vijay Kumar Mathankar said:
If any agricultural land situated in rural area sold for non agricultural purpose is attract capital gain
June 11th, 2010 at 1:58 am -
krishnas said:
HI Vijay Kumar,
Thank you for the response.
Thanks,
KrishnaJune 11th, 2010 at 7:47 am -
Prashant K Misra said:
My Grand father had agricultural and till date the farming is being done, land trf to my grand mother and then to our mother and now we our 4 brother’s are seeling the same.
Will it attract capital gain ??
If not then what form no declaration do I need to file ??What is the way to save the same ??
If Yes (capital gain) How much do I have to pay for
2.0 Lac (My share)What is the way to file the tax on the same (form No.) ??
Also I have not sufficient knowledge if it is under munical limit’s
then what will be the burden (tax).June 13th, 2010 at 4:03 am -
aniket said:
my grandfather has sold out an agricultural land within 8km from municipality area at sangli ,in nov 2008 which was inherited by his ancestors…
is the money received from the sold out land taxable??..if taxable,will he get a tax exemption if he buys a house with that money??
June 24th, 2010 at 10:19 am -
Jana said:
Hi,
Thanks for providing a good information in your site, I need one clarification, I am selling my agricultural land, the buyer is using our name and appliyed for conversion and plan approval, once all the process is over, it looks like we have applied for Coversion and got plan approved for the layout formation and then he will be paying the remaining amount, in this case we have to pay the TAX, the agricultural land comes in rural area of bangalore.
July 2nd, 2010 at 3:10 am -
Aarti V said:
my client has sold agricultural land under SEZ scheme and received 80% compensation.(compulsory acquisition). This land was situated at Dawadi whose population is below 10000. My client has invested this amount in purchase of flat. Is this transaction attract any Capital Gain? If yes then tell me the computation method?
July 17th, 2010 at 11:09 pm -
vinod Upadhyay said:
I have purchsed agriculture land in 2007 for Rs. 2200000/- in delhi.
Nw i have sale it in this f/y 2009-10 for Rs 7400000/-Should i pay any tax on this profit. If yes whats the calculation of capital gain. can i get any rebate in tax.
July 27th, 2010 at 4:33 am
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