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Your Queries – Income Tax: Pay tax on sale proceeds of farm land if it qualifies as capital asset

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Your Queries – Income Tax: Pay tax on sale proceeds of farm land if it qualifies as capital asset

By Chirag Nangia

I plan to sell agricultural land in my native place. Please tell me:
a) Where it is to be included in the ITR (under which section)?
b) Is any exemption available under Income Tax Act?
c) Tax rate for selling agriculture land for financial year 2021-22.

(a) For income-tax purposes, agricultural land situated outside specified limits is not classified as capital asset and hence the transfer of the same does not entail any capital gain tax. Pertinently, a land in India shall be classified as agricultural land:

(1) If situated in any area which is within the jurisdiction of a municipality and its population is less than 10,000, or

(2) If situated outside the limits of municipality, then situated at a distance measured (i) more than two km, from local limits of municipality and which has a population of more than 10,000 but not exceeding 1,00,000; or (ii) more than six km, from local limits of municipality and which has a population of more than 1,00,000 but not exceeding 10,00,000; or (iii) more than eight km, from local limits of municipality and which has a population of more than 10,00,000. If your agricultural property meets the aforementioned criteria, there shall be no capital gains and hence no disclosure is required in the ITR. However, if it qualifies as a capital asset, you have to disclose the sale consideration, indexed cost of acquisition and resultant capital gain in Schedule CG of the ITR form.

(b) To compute capital gains, deduct cost of acquisition, cost of improvement and expenses from sale proceeds. Section 54F allows tax exemption if LTCG on sale of any property (other than a residential property) is re-invested in a residential house property. One has to purchase the new residential property within one year before or two years from date of transfer. In case of construction, the timeline is three years. Section 54EC allows tax exemption if LTCG is invested in bonds of RECL/ NHAI, within six months of transfer. Total investment in the financial year and the subsequent financial year can be up to Rs50 lakh.

(c) For I-T purposes, immovable property is classified as long-term capital asset if held for more than 24 months else the same is treated as short term. While STCG is taxed at applicable slab rates for an individual taxpayer, LTCG is taxed at flat rate of 20% with indexation (plus applicable surcharge and cess).

(The writer is director, Nangia Andersen India. Send your queries to fepersonalfinance@expressindia.com)

   

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