What’s the tax legal responsibility on sale of farm land?

I’m a 33-year-old salaried skilled who needs to promote my ancestral agricultural land situated in a rural space.

How ought to I transact with the client contemplating that I wish to deposit the whole quantity in my financial institution and reinvest thereafter? The registry doc, nevertheless, will probably be primarily based on the circle price of the property, whereas the precise transaction will probably be carried out on the market price, which is thrice that of the circle price. Since I’m already within the 30% tax slab, what would be the tax legal responsibility on this transaction?


Agricultural land in India doesn’t qualify as a capital asset, except it’s located in:

Any space throughout the jurisdiction of a municipality/ cantonment board, with a inhabitants of 10,000 or extra; or any space (distance measured aerially) inside 2 km of the native limits of any municipality/ cantonment board with a inhabitants of greater than 10,000 however inside 100,000; or inside 6km of the native limits of any municipality/ cantonment board with a inhabitants of greater than 100,000 however inside 1 million; or inside 8km of the native limits of any municipality/ cantonment board with a inhabitants of greater than 1 million.

’Inhabitants’ for this goal is outlined because the variety of folks based on the final previous census of which the related figures have been printed earlier than the primary day of the earlier 12 months.

In case the land referred in your question meets the specs above, such agricultural land in India is not going to qualify to be a capital asset and therefore acquire/ loss from switch of such land shall not be taxable beneath the revenue tax Act.

Nevertheless, in case the land doesn’t meet the above specs, it would qualify as a capital asset and any acquire or loss from switch of such land will probably be topic to capital features tax beneath Part 45 of the Act.

Assuming that the land has been held for greater than two years (together with the holding interval of earlier proprietor from whom this property was inherited), the acquire could be categorized as long-term capital features (LTCG).

For the aim of calculation of LTCG, the fee and the listed value of acquisition will be thought-about as per the relevant provisions. Additional, because the precise transaction worth (i.e. the market price) is larger, the identical needs to be thought-about because the sale consideration for calculating LTCG (and never the decrease circle price).

The LTCG will probably be topic to a tax price of 20% plus relevant surcharge and cess. The roll-over deductions beneath Part 54B, 54F and 54EC of the Earnings Tax Act in direction of reinvestment in specified belongings will be evaluated towards the LTCG, topic to the required situations.

In relation to the mode of receipt of cash, please word that provisions of part 269SS of the Act prohibit receipt of any sum of cash in extra of 20,000 in money. Any transaction above this quantity needs to be in non-cash modes (account payee cheque/account payee financial institution draft/ use of digital clearing system by means of a checking account/ prescribed digital modes), in relation to switch of immovable property.

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

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