Tax on Sale of Agricultural Land & Part 54B Exemption

Agricultural Land is a land on which agricultural actions are carried out. This text focuses on the tax which might be levied on the capital positive factors arising on the sale of agricultural land in India.

An agricultural land might both be located in a rural space or located in a Non Rural space. The tax implication will differ in each the circumstances.

Capital Good points Tax on Sale of Agricultural Land in Rural Space

Rural Agricultural Land has been particularly excluded from the definition of Capital Asset as outlined in Part 2(14). As Rural Agricultural Land is just not thought of as a Capital Asset – due to this fact Tax gained’t be levied on sale of Rural Agricultural Land as it’s only levied on sale of a Capital Asset.

As Rural Agricultural Land doesn’t represent a Capital Asset, due to this fact Capital Good points Tax is just not levied on the sale of Rural Agricultural Land. This can apply no matter the worth of the transaction and the capital positive factors tax on sale of agricultural land won’t be levied in any case.

A confusion that arises right here is that which land could be thought of as Rural Land and which land could be thought of as Non Rural Land. To take away this confusion, the government has particularly outlined which Agricultural land could be thought of as Rural Land and which Agricultural land could be thought of as Non Rural Land. This definition has been talked about on Pg 13 of the Memorandum to the Finance Invoice 2013 which will be accessed right here.

Capital Good points Tax on Sale of Agricultural Land in Non Rural Space

Agricultural Land located in an City Space could be thought of as a Capital Asset and due to this fact the Capital Good points Tax could be levied on the sale of Agricultural Land located in non Rural Space.

Capital Good points Tax in such a case could be computed in the identical method as is computed on sale of every other property. The Value of Acquisition and Value of Enchancment could be deducted from the Sale Worth to reach on the Capital Good points.

Full Worth of Consideration                                                           xxx

(Much less)    Value of Acquisition                                                                         (xxx)

(Much less)    Value of Enchancment                                                                     (xxx)

Capital Good points                                                                               xxx

For an in depth learn on computation of Capital Good points, chances are you’ll refer this text on Computation of Capital Good points on sale of Property in India.

TDS not relevant on Sale of Agricultural Land

From 1st July 2013, TDS @ 1% is required to be deducted on sale/buy of transactions involving sale of Actual Property Property the place the transaction worth is greater than 50 Lakhs.

Nevertheless, Part 194IA for TDS on Property is just not relevant on sale/buy of agricultural land. Even when the transaction worth is greater than Rs. 50 Lakhs – TDS on Property won’t be relevant on sale/buy of agricultural land.

Part 54B: Capital Good points Exemption on Sale of Agricultural Land

No Capital Good points will come up on the sale of Agricultural Land located in a Rural Space as it’s particularly excluded from the definition of Capital Asset. Nevertheless, Capital Good points will come up on the sale of Agricultural Land located in a Non Rural Space as defined above.

Nevertheless, exemption will be claimed from such Capital Good points below Part 54B for funding in agricultural land. The brand new agricultural land bought might both be Rural Land or Non Rural Land.

To assert exemption below Part 54B for Capital Good points arising on the sale of Agricultural Land, the next situations are required to be happy:-

  1. Exemption below Part 54B can solely be claimed by an Particular person or by HUF.
  2. The asset transferred must be agricultural land. The land could also be a long run capital asset or a brief time period capital asset.
  3. The agricultural land must be utilized by the Particular person or his mother and father for agricultural goal at the very least for a interval of two years instantly previous the date of switch. In case of HUF, the land could also be utilized by any member of the HUF.
  4. Inside a interval of two years from the date of switch of outdated land, the taxpayer ought to purchase one other agricultural land.
  5. If the brand new agricultural land is just not bought earlier than the due date of the submitting of the revenue tax return, the Capital Good points quantity must be deposited within the Capital Good points Account Scheme which may later be withdrawn on the time of buy of agricultural land.

After buying the brand new agricultural land, if the brand new agricultural land is transferred inside a interval of three years from the date of buy, then the tax exemption allowed earlier could be withdrawn. In such a case, the assessee could be required to pay tax on the exemption claimed earlier.

Aside from exemption below Part 54B accessible for reinvestment in agricultural land, the vendor also can declare Capital Good points exemption below Part 54EC by reinvesting in specified bonds. The vendor also can declare exemption below Part 54F for reinvestment in a Residential Home.

  • Beneficial Learn: Capital Good points Exemption below Part 54EC & Part 54F

Different Related Factors

  1. No Capital Achieve could be chargeable to tax in case of a person or HUF if the agricultural land is compulsorily acquired below any regulation and the consideration of which is authorised by the Central Govt or RBI and acquired on or after 01-04-2004.
  2. Any Earnings arising from the sale of Agricultural produce can be not taxable in India.

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