Sec.2 (14)

[KALAYAN SINGH ADHIKARI]

Sir,

I am a govt. servant. I am paying income tax and filed income tax return.

I have a ancestral agricultural land in rural area which is 1o km far from manciple area. In the year 2009 I sold a piece of this land sum of Rs. 16.3 Lakh. In this regard, I have to need to some quarry.

Whether I have to pay income tax on this sale? or exempted?

Whether I have to show this amount in income tax return?

If I have to pay income tax, up to what amount?

It is, therefore, requested that kindly inform me.

Thank u very much.

 

KS ADHIKARI

[Sachin Agarwal]

Dear K S Adhikari,

Rural Agriculture LAnd is not Capital Asswt as per Section 2(14) of Income Tax Act, 1961. therefore you are not required to pay income tax on profit on sale of rural agriculture land.

 

Thanks

Sachin Agarwal

[DEV KUMAR KOTHARI]

Rural agricultural land  which is 10 km far from munciple area is not a capital asset, therefore excess of sale value over cost / indexed cost will not be taxable as capital gains.

However, you need to establish these facts and also that land was agricultural land and  used as such.

 

It was not in process of development for selling, in that case AO may try to treat gains as business income.

 

The income need to be shown under column fo rexempted incomes.

 

In case taxable - due to non agricultural use - take fair market value as on 01.04.1981 (I hope it was acquired before that date by your lineally ascendents) apply cost inflation index to FMV workout LTCG -tax will be @ 20% on such gains.

If AO treat it as business income then  LTCG will be computed based on market rate as on conversion, and normal rate of tax will apply  on business income after considering conversion of capital asset into capital asset.

AI Summary

Rural agricultural land not treated as capital asset may be exempt from capital gains tax, subject to use and development.
Sale of rural agricultural land located about ten kilometres from a municipal area is generally not a capital asset and thus not taxable as capital gains if the land was agricultural and used as such; the taxpayer must establish rural location and agricultural use. If the assessing officer considers the land part of a development or conversion for sale, gains may be taxed as business income at normal rates. Exempt amounts should be shown accordingly; if taxable as capital gains, compute long term capital gains using a fair market value benchmark and cost inflation indexation.