will I be taxed on sale of agricultural land?

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Query 1]

  1. I had purchased an agricultural land in the year 1987 out of my salary income & gift received from my father. The land was given on contract farming and I was earning small agricultural income on it. I am planning to sale it now for a hefty sum of Rs. 2.78 Cr around whereas the government valuation of the property is only Rs. 1.27 Cr. The land is an old agricultural land with no part as non agricultural. I seek your advice as to whether I am liable to pay the tax on sale of agricultural or not? To the best of my knowledge, agricultural income is tax free and so is the profit on sale of land. If still I am liable to for income tax, how it can be saved either by investing in another land or by investing in bank FDR? Kindly suggest me the means by which tax can be saved if it is applicable.
  2. If I gift the amount received on sale of land to my family member so as to divide the fund, whether the amount would be taxable in the hands of receiver? Whether the income from the gift would be taxable in my hands or in their hands only? [ram*******7@gmail.com]

Opinion:

 

Tax Liability on Agricultural Land Sold on or After 01.04.2013:

  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 in any area within the distance (measured aerially) of not more than:
    a] 2 kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
    b] 6 kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
    c] 8 kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
  2. If the agricultural land is situated within the radius of 2 kms/ 6 kms / 8 kms as mentioned above, then depending upon the period of holding, the profit arising on sale of agricultural land will be taxable as Long Term or Short Term Capital Gain.
  3. In your specific case, if the agricultural land is situated within a radius of 2/6/8 Kms as mentioned above, then some portion of surplus arising on sale of agricultural land would be taxable as Long term Capital Gain (LTCG). The tax rate for LTCG is @ 20%. However, if the land is outside the radius of 2/6/8 Kms as mentioned above, then nothing would be taxable as income and entire surplus would be tax free.
  4. Tax Saving Options:
    If taxable, LTCG arising to an Individual on transfer of agricultural land could be saved by claiming an exemption u/s 54B, 54EC or u/s 54F as under:
    i) Exemption Under Section 54B:
    The main stipulations incorporated in section 54B are as under: –
    a) Capital gain arises on transfer of Agricultural Land.
    b) The Agricultural Land is used by the tax payer or his parents for agricultural purpose for a period of two years immediately preceding the date of transfer.
    c) The taxpayer has invested LTCG towards purchase of another land for agricultural purposes within a period of two years from the date of transfer.
    ii) Exemption Under Section 54EC:
    To save tax u/s 54EC, taxpayer have to invest the amount of LTCG in the Specified bonds REC/ NHAI within a period of 6 months from the date of transfer. However, there is a maximum investment ceiling of Rs. 50 Lacs for investment in 54EC Bonds. Effectively, LTCG up to Rs. 50 Lacs only can be saved u/s 54EC.
    ii) Exemption Under Section 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.

 

Gift to family members:

The transaction of gifting the money to the family members would be tax neutral. The income from the amount gifted would be taxable in the hands of the family members only. However, any income from money gifted to spouse or daughter in laws would be subject to clubbing provision and income from the gifted amount would be taxable in your hands.

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