How are good points from farm land sale taxed?

I’m a 30-year-old software program engineer working in Kochi and have not too long ago obtained ₹10 lakh from the sale of a share of agricultural property. Is this quantity taxable? Also, if I used to be to buy a home with the proceeds, can it’s set off for revenue tax functions?

—Name withheld on request

Taxability on the sale of agricultural land will rely on the standing/location of the land that has been offered. Agricultural land in a rural space isn’t thought of a capital asset and subsequently achieve on sale of the identical isn’t topic to revenue tax.

On the opposite hand, the achieve on a sale of city agricultural land is topic to revenue tax beneath the top ‘capital gains’. If the holding interval of the city land is beneath three years, the capital good points will likely be categorized as short-term. If it’s greater than three years, the capital good points will likely be categorized as long-term.

Short-term capital good points are taxable at relevant tax charges and no exemption is accessible in opposition to the identical.

Long-term capital good points are taxable at 20%. Further, an exemption beneath part 54F of the revenue tax Act is accessible on the long-term capital good points earned from promoting a capital asset apart from a home property. So, in your case, when you’ve got a long-term capital good points from sale of city agricultural land, tax exemption beneath part 54F will likely be accessible if you’re investing the proceeds from the sale within the buy of a residential home, topic to the fulfilment of the next situations:

The residential home is bought inside a interval of two years from the sale of the agricultural land.

The full quantity obtained by you from sale proceed is invested within the buy of the residential home (If full quantity isn’t invested, then the exemption will likely be accessible solely on a proportionate foundation).

If the quantity isn’t invested inside six months, the quantity will must be parked with a financial institution within the ‘capital gains account scheme’.

Amit Bhachawat is chief monetary officer of India Mortgage Guarantee Corporation

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Updated: 04 Sep 2023, 11:53 PM IST