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Purchase of Agricultural Land - Taxation

conditions

(a) Both individual and HUF can claim exemption u/s 54B.

(b) The asset which is transferred should be an agricultural land situated in urban area. Such asset can be either LTCA / STCA. The agricultural land was used by the individual or his parents for agricultural purpose for a period of atleast 2 years immediately preceding the date of its transfer.

(c) New agricultural land should be purchased within 2 years from the ‘Zero Date’. Date of sale of original agricultural land is treated as ‘ZERO DATE’.

E.g. Suppose zero date is 7-8-2016. A new agricultural land should be purchased by 6-8-2018. (Zero date --->2 years).

Note: As per section 54H, zero date in case where property is compulsorily acquired shall be the date when part or full initial compensation is received. In case of enhanced compensation the date of receipt of enhanced compensation shall be the zero date.

(d) Deposit scheme u/s Section 54(2) is applicable. Refer section 54 for detail.

Amount of Exemption

Amount invested in new agricultural land (within 2 years from the zero date) +	AE
Amount deposited in Scheduled Bank on or before the due date of furnishing of return	TE
Total exempted amount limited to LTCG / STCG [AE+TE limited to LTCG / STCG]	xx

Note: The assessee can purchase more than one agricultural land to claim exemption u/s 54B.

Consequences 1: Consequences of Non-Utilisation of Deposited Amount Within 2 Years From The Zero Date

Amount of capital gain exempted earlier out of deposited amount	A
Less: Amount utilised to purchase new agricultural land within 2 years from the zero date	(B)
LTCG / STCG¹ (Chargeable to tax in the PY when period of 2 years expires from the zero date)	C

Note 1: 1 Depends upon original capital asset transferred.
Note 2: The remaining unutilised amount can be withdrawn at any time after the expiry of 2 years from the zero date.

Consequences 2:Consequences if newurban agricultural land is transfered and is transferred within 3 tears after the date of acquition of new land

The amount of capital gain exempted earlier + K	A
The amount of capital gain arising on transfer of new urban agricultural land	B
STCG (chargeable to tax in the year of transfer) (YOC = YOT)	A + B

Note 1: Where land transferred is situated in rural area then this condition is not applicable.

P1: Compute capital gain for the AY 2017-18 where long term capital gain arising on sale of agricultural land is Rs 5,00,000 on 1-6-2016. Due date of furnishing of return 30-9-2017.

The land was used by his parents for agricultural purpose since the date of purchase. For claiming exemption u/s 54B Mr. Taxcrazy purchases new agricultural lands and deposits in the Scheduled Bank under the Capital Gain Account Scheme, 1988.

	Date of purchase / deposited	Amount invested / deposited
AL 1 in rural area	30-7-2017	25,000
AL 2 in urban area	2-8-2016	20,000
AL in Surat	30-5-2016	1,30,000
Deposits 1	30-9-2017	4,00,000
Deposits 2	1-11-2017	3,55,000

Ans: AY 2016-17 LTCG Rs 55,000.

P2: Continuing from the preceding illustration Mr. Taxcrazy acquires following agricultural land from the deposited amount.

	Date of purchase	Amount invested
AL 4 in urban area	2-6-2018	4,18,000
AL 5 in urban area	2-12-2017	3,25,000
AL 6 in rural area	11-6-2018	12,000

Compute Capital Gain chargeable to tax for the AY 2019-20.

Ans: LTCG Rs 75,000.

P3: Continuing from both the preceding illustrations Mr. Taxcrazy sells the following agricultural land :

	Date of sale	Sale Consideration
AL 1	30-03-2020	1,80,000
AL in Surat	13-05-2018	60,000
AL 5	2-09-2019	4,50,000

Compute Capital Gain chargeable to tax for different AY’s

Ans: nil; (70,000); 4,50,000. Hint: No capital gain arises since rural agricultural land is not a capital asset.

Transfer of any LTCA (other than residentiaL house property) and purchase/construction of residential house property

conditions

(a) Only individual or HUF can claim exemption under section 54F.

(b) The asset which is transferred should be Long Term Capital Assets other than residential house property.

E.g. Transfer gold purchases residential house or sells commercial house and or construct residential house property.

(c) When new residential house property should be purchased or constructed in india. It is same as that of section 54. (1 year <--zero date -->2 years purchase or 3 years construction).

Note 1: As per section 54H zero date in case where property is compulsorily acquired shall be the date when part or full initial compensation is received. In case of enhanced compensation the date of receipt of enhanced compensation shall be the zero date.

(d) Deposit scheme u/s Section 54(2) is applicable.

Amount of Exemption

Proportionate exemption is available

LTCG

................................ x Amount invested in new RHP or amount deposited.

Net sale consideration

Note 1: Net Sale Consideration = Sale Consideration - Expenses on Transfer.

Consequences 1:Consequences of Non-Utilisation of Deposited Amount Within 2 Years From The Zero Date

Amount of proportionate capital gain exempted earlier	Prop TE
Less : Proportionate amount utilised within zero date	Prop (AE)
LTCG (chargeable to tax in the PY when period of 3 years expires from the zero date) (YOC = ZD + 3 years)	xx

Note 1: In other words it can be said that proportionate unutilised amount is treated as LTCG..
Note 2: The remaining unutilised amount can be withdrawn at any time after the expiry of 3 years from the zero date

Consequences 2: Consequences if new RHP is Transferred with in 3 years from the date pf acquition of new RHP

a.	Amount of proportionate capital gain exempted earlier shall be treated as LTcG in the year of transfer. (yOc = YOT)
b.	Amount of capital gain arising on transfer of new residential house property is treated as STcG in the year of transfer. (YOC = YOT)

Consequences 3. If any other house(other than the new residential house) is purchased/constructed with in 2/3 years from the zero date

In such case the amount of proportionate capital gain exempted earlier shall be treated as LTCG which shall be chargeable to tax in the year of purchase / construction of new house. It means if more than one residential house property is purchased or constructed within 2 / 3 years from the zero date exemption is withdrawn in case of first house. If exemption is claimed in respect of the first house it shall be withdrawn and shall be taxed in the year of purchase of second residential house.

WHEN EXEMPTION U/S 54F IS NOT AVAILABLE (RESTRICTION)

If on the date of transfer of the original asset the assessee owns 2 or more than 2 residential house properties, the exemption u/s 54F is not available. It means to claim exemption u/s 54F the assessee should not own more than one residential house property on the date of transfer of original asset.

Note : To claim exemption the residential house should be purchased or constructed in India.

P1: Compute capital gain for AY 2017-18 on the assumption that due date of filing of return is 31-7-2016.

Purchase of Agricultural Land - Taxation | Income Tax for assessment (Inter Level)

For claiming exemption u/s 54F Mr. Taxcrazy deposits RS 5,00,000 on 1-7-2017 under Capital Gain Account Scheme, 1988 to purchase a new residential house property. Expenses on transfer was RS 2,000.

Solution

Computation of Capital Gain for ay 2017-18

Sale Consideration	7,66,000
Less : Expenses on transfer	(2.000)
Net sale consideration (NSC)	7,64,000
Less : Indexed COA (1125 - 497 x 50,000)	(1,13,179)
LTCG	6,50,821
Percentage (LTCG - NSC)	85.186%
Less : Proportionate exemption u/s 54F of the deposited amount (85.186% of 5,00,000)	(4,25,930)
LTCG	2,24,891

P2 : In the above illustration Mr. Taxcrazy purchases a new residential house property on 14-7-2018 for Rs 2,00,000 out of the deposited amount. Compute capital gain chargeable to tax.

Solution

Computation of Capital Gain for the Ay 2020-21

Amount of proportionate capital gain exempted earlier	4,25,930
Less : Proportionate amount utilised within 2 years from the zero date (85.186% of 2,00,000)	(1,70,372)
LTCG	2,55,558

Note : The remaining amount of Rs 3,00,000 can be withdrawn after 14-2-2020.

P3 : In the above illustration Mr. Taxcrazy sells new residential house property on 13-06-2020 for Rs 7,00,000.

Solution

Computation of Capital Gain for the Ay 2021-22

1. Since new residential house property is sold within 3 years of its purchase therefore amount of capital gain exempted earlier i.e. ₹ 1,70,372 shall be treated as LTCG.

2. STCG = Sale Consideration – COA = 7,00,000 – 2,00,000 = 5,00,000

P4: Shri Arvind sold some shares on 1-9-2016 for Rs 6,00,000. He had purchased these shares on 15th May, 1996 for ₹ 1,30,000. He purchased a residential house on 1st December, 2016 for Rs 1,50,000. He did not own any other residential house. Assume that the shares have been sold outside a recognised stock exchange. Compute his taxable capital gain for the assessment year 2017-18.

Ans: 90,369.

P5: X sold Govt. securities for Rs 5,00,000 on October 1, 2016, which had been acquired by him in October 1997 for Rs 50,000. He wants to utilize the said amount of sale consideration for purchase or construction of a new residential house. He already owns one residential house at the time of sale of the securities i.e., on October 1, 2016. He has deposited Rs 4,00,000 under the Capital Gains Deposit Account Scheme with a specified bank on April 30, 2017. Ascertain the capital gain taxable in X’s hands for assessment year 2016-17 and advice him as to what further action he has to take to avail of the exemption. [CA M01]

Ans: 66,012. He should purchase or construct new RHP out of deposited amount within specified time limit otherwise exemption of ₹ 2,64,048 allowed earlier shall be taxable in AY 2021-22.

1. A person is chargeable to tax under the head “Capital gain” only if he has transferred a capital asset during the previous year. Is there any provision under the Income-tax Act, 1961 as to when a person is chargeable to tax under the head “Capital gain” if he purchases a capital asset? Give an example of such provision, if any?

2. Is there any provision under the Income-tax Act, 1961 as to when a person neither transfer a capital asset nor purchases a capital asset but still there arises a gain which is chargeable to tax under the head “Capital gain”?

3. How do you differentiate between section 54 and section 54F ?

Solution

1. Section 54F.

2. Yes, Section 54EC When the assessee pledges the asset.

	Section 54	Section 54F
1.	Sale of RHP and purchase/construction of RHP.	Sale of LTCA (other than RHP) and purchase/ construction of RHP.
2.	On the date of sale i.e. on the zero date you may have more than 2 RHP, then also you get exemption.	On the date of sale i.e. on the zero date you should not own 2 or more than 2 RHP.
3.	To claim exemption an assessee is allowed to purchase/construct only 1 RHP. If assessee purchases second house exemption is not withdrawn.	To claim exemption an assessee is allowed to purchase/construct only 1 RHP, otherwise exemption is withdrawn.
4.	When a new RHP is sold within 3 years from the zero date only STCG arises.	When a new RHP is sold within 3 years from the zero date both LTCG and STCG arises.

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FAQs on Purchase of Agricultural Land - Taxation - Income Tax for assessment (Inter Level)

1. How is agricultural land taxed in the context of its purchase?

Ans. Agricultural land is subject to taxation based on its purchase price and usage. The tax rates vary depending on the location and government regulations. Additionally, factors such as the size of the land and its productivity may also influence the taxation process.

2. Are there any exemptions or benefits available for the purchase of agricultural land?

Ans. Yes, certain exemptions and benefits are available for the purchase of agricultural land. These may include tax incentives, subsidies, and exemptions on specific agricultural activities. It is advisable to consult with local tax authorities or agricultural departments to determine the eligibility for such benefits.

3. What are the potential tax implications when selling agricultural land?

Ans. When selling agricultural land, there may be capital gains tax implications. The tax is generally levied on the profit obtained from the sale, which is calculated by deducting the purchase price from the selling price. However, certain countries or regions may provide exemptions or reduced tax rates for agricultural land sales, especially if the proceeds are reinvested in agriculture-related activities.

4. Is there a difference in tax treatment for purchasing agricultural land for personal use versus investment purposes?

Ans. The tax treatment for purchasing agricultural land for personal use versus investment purposes may vary. In many cases, if the land is acquired for personal use, it may be eligible for certain exemptions or reduced tax rates. However, if the land is purchased for investment purposes, it may be subject to different tax regulations, such as capital gains tax upon sale or income tax on rental income generated from the land.

5. Are there any tax implications if agricultural land is inherited or gifted?

Ans. Inheriting or receiving agricultural land as a gift may have tax implications. The tax treatment depends on the jurisdiction and the relationship between the donor and the recipient. In some cases, there might be exemptions or reduced tax rates for inherited agricultural land. However, it is essential to consult with tax professionals or local authorities to understand the specific tax implications in such situations.

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