“TRANSFER OF AGRICULTURAL LAND”


TAX TALK-26.11.2012-THE HITAVADA

TAX TALK  

BY CA. NARESH JAKHOTIA
Chartered Accountant

“TRANSFER OF AGRICULTURAL LAND”

Query 1]
I purchased agriculture land in year 1986 for a sum of Rs. 35,000/-. The village & agriculture land falls within 8 Km of municipal limits. I am now selling this Agri land for Rs. 1,50,00,000/- (Rupees one and Half Crores). I understand that I may have to pay Capital Gain Tax for this sale of land. Kindly advice on the following issues:
1.      Kindly confirm whether the sale of agricultural land attracts income tax?
2.      What will be a capital gain tax liability?
3.      Can I invest in House property/ residential plots to offset capital gain?
4.      How much amount can be invested in capital gain bonds and within how much time?
5.      Is there any tax relief on sale of such agriculture property? [Ramnarayan Dubey, Jabalpur-ra.du.1944@gmail.com]
Opinion:
1.      In normal course, any income from transfer of agricultural land, which is being used for agricultural purpose, shall be tax free if the agricultural land is not situated:
(a) 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 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
(b) 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 items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette.
 In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated beyond notified municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
2.      There is a general confusion as to the area of 8 Kms. It may be noted by all that 8 kms is the maximum distance after which the land would be treated as Rural Agricultural Land. For some cities, even the land within 8 kms could be considered as Rural Agricultural Land. The area for the purpose of recognizing Rural Agricultural Land has been notified vide Notification No. 9447 Dated 06.01.1994. For the mass benefit, I have uploaded the said Notification at http://nareshjakhotia.blogspot.in/2012/11/notification-no-9447-by-cbdt.html
3.      The agricultural land as elaborated above& sold by you, if not a rural agricultural land, the long term capital gain (LTCG) would be required to be computed & the same would be taxable @ 20% .
4.      Computing Long Term Capital Gain (LTCG):
a] The property was purchased by you in the year 1986. The sale price of the land is Rs. 1.50 Cr. It is presumed that the Government valuation of the land for stamp duty purpose is not higher than this. CII for the FY 2012-13 is “852”.
b] If it is purchased before 31.03.1986, CII for the FY 1985-86 (133) would be applicable & the LTCG would be Rs. 147.75 Lacs
c] If it is purchased after 31.03.1986, CII for the FY 1986-87 (140) would be applicable  & the LTCG would be Rs. 147.87 Lacs.

5.      Saving Income Tax on LTCG arising on sale of Urban Agricultural Land:
There are three easy option for you to save tax on LTCG arising from the sale of urban agricultural land. You can have an exemption u/s 54B or U/s 54F or U/s 54EC.
i) Exemption Under Section 54B:

The main stipulations incorporated in section 54B are as under: -
a) Capital gain arises on transfer of Agricultural Land.
b) The Agricultural Land is used by the tax payer or his parents for agricultural purpose for a period of two years immediately preceding the date of transfer.
c) The taxpayers has purchased another land for agricultural purposes within a period of two years from the date of transfer.
ii) Exemption Under Section 54EC:

To save tax u/s 54EC, One can invest the amount of LTCG in the Specified bonds REC/ NHAI within a period of 6 months from the date of transfer. However, there is a maximum investment ceiling of Rs. 50 Lacs only in a financial year in the 54EC Bonds.
ii) Exemption Under Section 54F:
For exemption u/s 54F, subject to various other terms / stipulations, you have to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period.

Query 2]
I have recently sold of my ancestral property for Rs. 60 Lacs. I am 80 years old & except my two married daughters, I have no legal heir. I have joint saving bank account with both of them separately in two different banks. I want to keep Rs. 30 Lacs each in fixed deposits in the joint name of myself with each of them separately in the above two banks.
My questions are:
1.      Can I pay the total income tax accrued on the above Rs. 30 Lacs + Rs. 30 Lacs = Rs. 60 Lacs myself without bothering them to pay?
2.      The joint fixed deposit will have a lock-in period of say 3 years. If I die within the lock-in period, can they switch over to continue to pay the income tax them self?
3.      Is there any provision to gift the money to them without paying gift tax? I am told that no gift tax is payable in case of gift to near relatives and then keep in joint account by both of them separately with me?  [Praphulla Dhar-professor.ulla@yahoo.co.in]
Opinion:
Capital gain arising from the transfer of ancestral property is also taxable and not tax free. It appears that you have taken care of the Capital Gain arising on transfer of ancestral property & you are talking about the taxability of fund received from the sale of your ancestral property. The taxability of the same is as under:
1.      You can incorporate the name of your daughter for the name sake as 2nd holder in FDR, without diluting the ownership of the amount. The entire income as a result of this will be taxable in your hands alone & not in the hands of the daughter even though their name appears second in the FDR.
2.      You can nominate each 2nd named daughters as the nominee in the FDR. As a result of this, they will become the owner of the FD’s after your death. The income accruing subsequently therefrom would be taxable as the income of your daughter.
3.      If you gift the amount to your daughters, it will not be taxable, neither in your hands nor in the hands of your daughters. If you gift the amount, the resultant income would be taxable as the income of the daughters only even though your name is incorporated therein as 2nd holder for the name sake.


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