Agriculture land in India not having any capital gain tax implication if located in rural area or having above limit of 8 kilometers from urban area. However, there where many questions and confusion lies in this topic due to various complex transaction taken place when you sale your agriculture land. it’s absolutely correct to say urban agriculture land and non agriculture land transaction is taken place seller must have to pay taxes on capital gain either long term or short term.
What is the remedy to, Capital gain on sale of converted agriculture land?
- In first instance, seller must be liable to pay taxes on capital gain as land is Non Agriculture at time of sale.
- No capital gain tax on sale of agriculture land immediately converted to non agriculture before sell if taxpayer uses it as a agriculture purpose immediately before conversion. Mere Inclusion of special economic zone without benefit of any infrastructure development does not converted land into non agriculture. (CIT vs. M R Anandaram (HUF) Karnataka High court Judgement ).(read full text in below attachment)
- No capital gain tax on sale of agriculture land if taxpayer uses it as a agriculture purpose immediately before conversion. Land must be treated as agriculture land (Shri Kamanahali Pilla Ready Nagesh Vs ITO (ITAT Banglore).
Some times small farmer having huge tax liability by simply selling the land as Non Agriculture for the sake of sell transaction. Merely conversion of agriculture land in to non agriculture before sell which was used for agriculture purpose than that transaction does not liable to tax.
CIT vs. M R Anandaram (HUF) Karnataka High court Read full judgement attach below
Main question, HC answered in this case law is as follows: (Read answers from attachment)
- Whether the lands in question fall within the definition of ‘Capital Asset’ under Section 2(14) of the Act?
- Whether the Tribunal was justified in law in holding that lands which were converted and lapsed and which have been cultivated and yielding agricultural income can be held to be agricultural lands for the purpose of Section 2(14) of the Act?
- Whether the Tribunal was justified in holding that BIAPAA does not constitute a municipality for the purposes of Section 2(14) of the Act?
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