What is the tax obligation on sale of farm land?

I’m a 33-year-old salaried expert who wishes to advertise my ancestral agricultural land located in a rural area.

How should I transact with the consumer considering that I want to deposit your full amount in my monetary establishment and reinvest thereafter? The registry doc, nonetheless, will in all probability be based totally on the circle payment of the property, whereas the exact transaction will in all probability be accomplished available on the market payment, which is thrice that of the circle payment. Since I’m already inside the 30% tax slab, what can be the tax obligation on this transaction?

—Toshi

Agricultural land in India does not qualify as a capital asset, besides it is situated in:

Any area contained in the jurisdiction of a municipality/ cantonment board, with a inhabitants of 10,000 or additional; or any area (distance measured aerially) inside 2 km of the native limits of any municipality/ cantonment board with a inhabitants of higher than 10,000 nevertheless inside 100,000; or inside 6km of the native limits of any municipality/ cantonment board with a inhabitants of higher than 100,000 nevertheless inside 1 million; or inside 8km of the native limits of any municipality/ cantonment board with a inhabitants of higher than 1 million.

’Population’ for this goal is printed as a result of the number of people in keeping with the ultimate earlier census of which the associated figures have been revealed sooner than the first day of the sooner 12 months.

In case the land referred in your query meets the specs above, such agricultural land in India will not qualify to be a capital asset and subsequently purchase/ loss from swap of such land shall not be taxable beneath the earnings tax Act.

However, in case the land does not meet the above specs, it ought to qualify as a capital asset and any purchase or loss from swap of such land will in all probability be matter to capital optimistic points tax beneath Section 45 of the Act.

Assuming that the land has been held for higher than two years (along with the holding interval of earlier proprietor from whom this property was inherited), the purchase could possibly be categorized as long-term capital optimistic points (LTCG).

For the goal of calculation of LTCG, the value and the listed worth of acquisition could possibly be thought-about as per the related provisions. Further, as a result of the exact transaction value (i.e. the market payment) is elevated, the equivalent should be thought-about as a result of the sale consideration for calculating LTCG (and by no means the lower circle payment).

The LTCG will in all probability be matter to a tax payment of 20% plus related surcharge and cess. The roll-over deductions beneath Section 54B, 54F and 54EC of the Income Tax Act within the route of reinvestment in specified belongings could possibly be evaluated in the direction of the LTCG, matter to the specified conditions.

In relation to the mode of receipt of money, please bear in mind that provisions of half 269SS of the Act prohibit receipt of any sum of money in additional of ₹20,000 in cash. Any transaction above this amount should be in non-cash modes (account payee cheque/account payee monetary establishment draft/ use of digital clearing system by means of a checking account/ prescribed digital modes), in relation to modify of immovable property.

Parizad Sirwalla is confederate and head, world mobility suppliers, tax, KPMG in India.

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