Query 1]

My grandfather purchased 5 Acres of Agricultural land of Rs. 20.000/- (Rs. 4,000/- Acre) in the Financial Year 1970-71. My grandfather gifted that land to my father in the Financial Year 2000-01. Now my father has sold that land for Rs. 1.20 Crore (Rs. 24 Lacs per Acre) in financial year 2011-12 & purchased agriculture land of Rs. 1 Crore.

My questions are

  1. what will be the tax liability &

  2. If there is tax liability, what we can do, to save tax? []


  1. In normal course, any income from transfer of agricultural land, which is being used for agricultural purpose, shall be tax free if the agricultural land is not situated:

    (a) in any area which is comprised within the jurisdiction of  a municipality (Whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

  2. or(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in items (a), as the central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazette.
    In short, Profit arising on sale of Rural Agricultural land used for agricultural activity situated beyond notified municipal limit or a cantonment board with a population of less than 10,000 would be tax free.
  3. If the agricultural land sold by you is not a rural agricultural land as elaborated above, the long term capital gain would be required to be computed & the same would be taxable @ 20% .
    Computing Long Term Capital Gain (LTCG):
    a] The property to be sell is an ancestral property acquire before 01.04.1981. You can replace the value of Rs. 20,000/- with the fair market value of the property as on 01.04.1981 for computing the long term capital gain.
    b] The fair market value of the property as take above can be index by multiplying it with 7.85 to arrive at the index cost of acquisition. [Cost Inflation Index for the FY 2011-12 is “785”] c] The difference between the sale price (i.e., Rs. 1.20 Cr) and the indexed cost of acquisition as computed in (b) above, would be the amount of LTCG.

    (A word of caution: If the valued adopted by the stamp duty authorities for levy of stamp duty is higher than Rs. 1.20 Cr then the LTCG would be require to be compute by taking such higher value).
  4. Saving Income Tax on LTCG arising on sale of Urban Agricultural Land:

    Tax on long term capital gain arising on sale of urban agricultural land can be save by claiming an exemption u/s 54B
    The main stipulations incorporated in section 54B are as under: –
    a) Exemption is available to an Individual Only. [Exemption is not available to HUF or any other category of Assessee] b) Capital gain arises on transfer of Agricultural Land.
    c) The Agricultural Land is use by the tax payer or his parents for agricultural purpose for a period of two years immediately preceding the date of transfer.
    d) The taxpayers has purchase another land for agricultural purposes within a period of two years from the date of transfer.
    If all the above conditions are satisfy, Lower of the following shall be allow as exemption u/s 54B:
    i) The amount of capital gain generated on transfer of agricultural land or
    ii) The amount invested for purchase of new Agricultural Land.


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