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    Tax Treatment on Sale of Rural Agriculture Land

    Agricultural land is a land on which agricultural activities are carried out. Agricultural activity has been held to be an activity where human effort has resulted in growing crops. 

    Once it is held that the land is agricultural then one of the major legal issues arising in the treatment of capital gain is, whether the land is situated within the area specified in item (a) and (b) of sub-clause (iii) of clause (14) of Section 2. 

    Capital gain on transfer of Agricultural land: 

    Any profit arising from sale of a capital asset would be chargeable to income tax under the head ‘capital gains’ and shall be deemed to be the income of the year in which the transfer took place. Therefore, capital gains would arise only on sale of capital asset.

     

    As per Section 2(14) of the Income Tax Act 1961, the definition of the ‘capital asset’ excludes ‘agricultural land’ which is situated outside the specified area and such agricultural land would not be considered as “capital asset” for the purpose of computation of capital gains.

     

    Agricultural land outside specified area:

     

    Agricultural land was earlier defined to mean land not situated in-

     

    • Any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand or

     

    • Any area within such distance not exceeding eight kilometers from the local limits of any municipality or cantonment board as notified.

     

    Budget 2013:

     

    The Finance Bill, 2013 has proposed to amend the definition of agricultural land in sec 2(14) (iii) of IT act, which says that, a land will be considered as an “agricultural land” if it is not situated:

     

    1. 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 ten thousand; or
    2. In any area within the distance, measured aerially,—
    3. Not being more than two kilometers, from the local limits of any municipality or cantonment

     

    board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

     

    1. Not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

     

    • Not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

     

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    SBS Interns' Digest

    www.sbsandco.com/digest

     

     

     

     

     

    Distance

    Population

     

     

     

     

     

     

    Within 2 kilometers

    10,000-1,00,000

     

     

     

     

     

     

    2 kilometers – 6 kilometers

    1,00,000-10,00,000

     

     

     

     

     

     

    6 kilometers – 8 kilometers

    More than 10,00,000

     

     

     

     

     

     

    The term ‘population’ means population according to the last preceding census of which the relevant figures have been published before the first day of the financial year.

     

    The term aerially generally means the shortest distance by air. The distance should be from the Municipal Corporation measurement. Such distance is to be measured on straight line aerially as crow flies. Human-By road, Crow’s flight-straight line distance (aerial measurement).

     

    It would also be worthwhile to see what is the nearest urban area because the land may be located in the vicinity of several areas mentioned in the notification. If the land falls within anyone of the areas then it becomes a “Capital Asset” within the meaning of the Act.

     

     

     

    “If you don’t like something, change it. If you can’t change it, change your attitude.”

     

    - Maya Angelou

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