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U/S 54F & U/S 54EC
I had purchased an agriculture land in the year 1995 and sold the same in April- 2011. The agricultural land was well within rural land as per Income Tax Act. i.e., there was no village having more than 10,000 populations & is not within the circle of 8 Km as per pervious census, but as per latest census the population of a nearby village has been more than 10,000. My queries are:
- From when the new census would apply?
- Whether my sale would attract LTCG or it would be free from capital gain tax available on sale of Rural Agricultural Land?
In normal course, any income from transfer of agricultural land 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; 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.
- However, depending upon the facts & Circumstances of each & every case, if a person is engaged in the business of trading in agricultural land then the profit could be taxable as “Income from Business”. Similarly, if the agricultural land is purchased with a motive to instantly transfer it to earn profit then it could be considered as treating it as an adventure in the nature of trade & would be taxable under the head “Income from Business”.
I have few queries regarding subject matter and I seek your guidance for the same.
I have purchased a residential plot in Feb-1995 for total consideration as detailed below:
- Purchase cost : 1.98 Lacs
- Stamp Duty, Reg : 0.18 Lacs
- Commission : 0.02 Lacs
- Fencing wall Cost : 0.32 Lacs
TOTAL : Rs. 2.50 Lacs
I sold the said plot for Rs. 102 Lacs. I seek your kind advice on the following issues:
- What is my capital gain?
- Whether capital gain tax exemption would be available if I purchase residential house (say Rs. 40 Lacs), plot (say Rs. 20 Lacs) and NHAI Bonds (say Rs. 40 Lacs), Total of Rs. 100 Lacs all taken together? [firstname.lastname@example.org]
- It is presume that
a) you have transferred the plot in the FY 2011-12.
b) The Stamp duty valuation of the plot transferred is not exceeding Rs. 102 Lacs.
- Cost Inflation Index (CII) for the relevant F.Y. 1994-95 & F.Y. 2011-12 is “259” & “785” respectively.
- LTCG in your case shall be Rs. 94.42 Lacs [ i.e., Rs. 102 Lacs Less ( 2.50 Lacs * 785 / 259)
- Long Term Capital Gain arising on sale of plot can be save by claiming an exemption u/s 54F and/or U/s 54EC.
a) U/s 54F:
For exemption u/s 54F, subject to various other terms / stipulations, you have to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period. Exemption u/s 54F is available on the basis of net sale consideration invested (& not on the basis of LTCG earned). If entire net sale consideration is not investe, exemption will be available on proportionate basis.
b) U/s 54EC:
To save LTCG tax u/s 54EC, you are required to invest the amount of Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets in the specified bonds issued by REC/NHAI. There is a maximum ceiling of Rs. 50 Lacs in a financial year for investment in 54EC Bonds.
- There is no specific restrictions/ bar in claiming simultaneous exemption u/s 54F & 54EC taken together. We are of the opinion that
a] you can claim an exemption u/s 54F towards investment in the residential house property and
b] also u/s 54EC towards investment in the 54EC Bonds.
- Isolated Investment in the plot of Rs. 20 Lacs will not enable you to claim any exemption from long term capital gain.
U/S 54F & U/S 54EC
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