How to save tax on sale of agricultural land?

—Name withheld on request

As per the provisions of the Income Tax Act 1961, agricultural land is not treated as a capital asset, unless it fulfills the following conditions:

a) the land is situated in any area under the jurisdiction of a municipality or cantonment board having a population of not less than 10,000; either

b) The land is located in an area within an aerially measured, specified distance (range 2 km to 8 km) from the local limits of a municipality or cantonment board (with a population of 10,000 to one million).

Based on the limited facts available, it is not clear whether the agricultural land owned by you qualifies as a capital asset. If agricultural land does not satisfy the above conditions, it is not treated as a capital asset, and gains from its sale will not be subject to tax.

If agricultural land qualifies as a capital asset, it will be treated as a long-term capital asset (LTCA), as the holding period is more than 24 months and the sale proceeds of such agricultural land will be subject to long-term capital gain (LTCG) . In addition, one can claim the following deductions from the resulting LTCG:

Section 54B: Where LTCG arises from transfer of land which was being used for agricultural purposes and the assessee has purchased any other land for agricultural purposes within a period of two years after that date, proportionate deduction is available to that extent LTCG investment will be as prescribed. Further, if LTCG cannot be invested for purchase of new land by the date of furnishing of return under section 139 of the Act, such amount shall be deposited in a specified capital before the due date of filing of tax return. can go. Profit Account Scheme (CGAS) account with authorized banks and used in the prescribed manner to avail deduction.

Section 54EC: LTCG is to be invested in notified bonds with stipulated conditions within 6 months from the date of transfer of LTCA. Such capital gains amount so invested shall be eligible for exemption up to a maximum of 50 lakhs during the financial year in which LTCA is sold / subsequent financial years.

Section 54F: Net sale proceeds of agricultural land invested in the purchase or construction of any other property within the specified time frame, provided that the individual does not have more than one residential property other than the new house on the date of sale of the LTCA. , Where the entire net sale proceeds are not invested and only a partial amount is invested, the deduction under section 54F will be available only for proportionate LTCG.

Further, if the net sale proceeds cannot be invested for purchase or construction of a new house by the date of furnishing the return, such amount may be credited to the specified CGAS bank account with the authorized banks and in the prescribed manner. Can be used from, to avail deduction.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.

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