Income tax queries: Why sale of agricultural land in rural areas not subject to capital gains tax?

By: |
February 7, 2018 2:03 AM

If the population exceeds one lakh but doesn’t exceed 10 lakh, then it shall not be within six kilometers and if it exceeds 10 lakhs, then it shall not be within eight kilometers.

Since the gain in this case will be long-term, capital gains will be calculated by deducting expenses incurred exclusively for such transfer, indexed cost of acquisition (i.e. the cost adjusted for inflation) and indexed cost of improvement from the sale value.

• My late father was gifted 51 bighas of agricultural land in 1955 and the value as per the deed is Rs 5,000. My mother wishes to dispose part of the agricultural land for her treatment. How would we calculate the long-term capital gain on the sale of said land?

– H D Singh

Since the gain in this case will be long-term, capital gains will be calculated by deducting expenses incurred exclusively for such transfer, indexed cost of acquisition (i.e. the cost adjusted for inflation) and indexed cost of improvement from the sale value. Also, since the property is purchased prior to 2001, the market value of this property as on April 1, 2001 shall be considered the cost and then shall be indexed. Further, agricultural land in rural area is not subject to capital gains tax and it shall be considered rural agricultural land if it is outside the jurisdiction of a municipality or cantonment board having population of up to 10,000 as per last census.

If the population exceeds 10,000 but doesn’t exceed one lakh, then the land should not lie within two kms of municipality. If the population exceeds one lakh but doesn’t exceed 10 lakh, then it shall not be within six kilometers and if it exceeds 10 lakhs, then it shall not be within eight kilometers. However, if the land doesn’t qualify as rural agricultural land, you can invest the amount in a residential house property, or specified bonds like that of NHAI and RECI, to save this from being taxed as capital gains.

• I am a share holder in a cooperative bank in Mumbai. Is dividend received by a share holder from a cooperative bank taxable in his hands?

—B L Velu

Dividend received from a domestic company is exempt u/s 10(34) of the Income Tax Act, 1961. Since a cooperative society is owned by its customers and thus cannot be referred as a domestic company, and also it is not required to pay dividend distribution tax on the dividends, dividend received from a cooperative bank will be taxable in the hands of the shareholder under the head “income from other sources”.

The author is partner, Ashok Maheshwary & Associates LLP. Send your queries to fepersonalfinance@expressindia.com

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