How is sale of agricultural land taxed?

We are a household of 4, together with my mother and father and my elder brother. My father is planning to promote fives acres of ancestral agricultural land in our native place, a village that’s round 2-5km from the closest municipality and share the proceeds equally amongst all 4 of us. What are the tax implications of above sale? In what quantity ought to the proceeds be divided? My father intends to switch the proceeds to every of our financial institution accounts. Are any paperwork mandatory for such financial institution transfers so that each one relations have correct proof to elucidate the supply of this revenue if that is raised by the revenue tax division?

—Name withheld on request

Agricultural land in India doesn’t qualify as a capital asset (Section 2(14)), until it’s located as follows:

a) In any space inside the jurisdiction of a municipality/ cantonment board, with a inhabitants* of 10,000 or extra; or

b) In any space (distance measured aerially):

• Within 2km of the native limits of any municipality/ cantonment board with a inhabitants of greater than 10,000 however inside 100,000;

• Within 6km of the native limits of any municipality/ cantonment board with a inhabitants of greater than 100,000 however inside 10,00,000;

• Within 8km of the native limits of any municipality/ cantonment board with a inhabitants of greater than 10,00,000.

The time period inhabitants for this objective means the inhabitants in response to the final previous census of which the related figures have been revealed earlier than the primary day of the earlier yr.

In case the land referred in your question, qualifies to be an agricultural land in India which isn’t a capital asset as outlined above, any achieve/ loss from switch of such land, shall not be taxable underneath the revenue tax Act.

However, in case the land qualifies to be a capital asset, your complete achieve/ loss from switch of such land shall be topic to capital positive aspects tax in your father’s arms as he’s the proprietor of the land and all associated provisions shall apply. In such a case, because the land is held for greater than 24 months, the identical shall be thought-about to be sale of long-term capital asset and any achieve shall classify as long-term capital achieve (LTCG).

The subsequent switch of the proceeds obtained by your father from sale on the land to the relations (being partner and two kids) shall not be taxable within the arms of the recipients, as the identical would qualify to be receipts from a ‘relative’, as outlined underneath Section 56 of the Act (regardless of the proportion of the share).

Documents corresponding to registered buy deed, registered sale deed, present deed, copy of financial institution statements, and many others. could also be maintained for income-tax functions. From a authorized perspective, it might be advisable to judge the requirement individually with an skilled authorized practitioner.

Parizad Sirwalla is accomplice and head, international mobility providers, tax, KPMG in India.

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Updated: 13 Aug 2023, 10:48 PM IST