Tuesday, February 3, 2009

Capital Gain Exemption on Sale of Agricultural land

on Tuesday, February 3, 2009

I have sold our ancestral agricultural land in Punjab recently.

  1. We have been told that it is within 8 Kms of municipal limits and hence categorised as urban land, which is taxable for the purpose of CG (rural land is tax free).
  2. Further research indicated that proceeds from agricultural land may either be re-invested in purchase of another agricultural land or a residential property in order to be eligible for Capital gain rebate under income tax.
  3. Investment in Commercial property is not eligible for any rebate.
  4. Also, if I buy residential property will I get the benefit of cost indexing as I will get if I re-invest in agricultural land?
  5. I do not intend to purchase another agricultural land, therefore, the only option left for me in to buy residential land. BUT, now I find out that since I already own a residential property in India, I cannot claim capital gain rebate on that new property I may be planning to buy. Is CG rebate not eligible on the second residential property. I learned that there was an amendment to this section sometime back and second house is eligible.
  6. how can I get the benefit of the CG rebates aside putting money in capital bonds for 3 years?
G walia

Dear G

You have studied a Lot on this subject and most of your Information is correct but some of it is not correct.

Agriculture Land: agriculture land in rural area is not covered in definition of Capital asset hence no capital gain is applicable in case of sale of agriculture land in rural area .However capital gain tax is applicable if land is situated in urban area.

Investment in Agriculture Land:yes you are correct that reinvestment in agriculture land can save tax on capital gain but there are some conditions to it ,as given in section 54 B of the income Tax act,But as you have given you are not Interested in it we are not going to these details .further It is true that

Investment in commercial property will not give you any exemption /deduction from capital gain.

Investment In Residential property : with Investment in residential property you can save tax u/s 54 F .But not same as agriculture land can .the difference between both the option are that in case of section 54 B (Investment in agriculture land) the amount to be invested only the amount of capital gain but in case section 54 F (investment in new residential house) net sale proceed is to be invested in the new Residential house.

Purchase of residential house: Purchase of residential house option is left with you ,because as section this option can be opted if
    -there is long term capital gain.
    -gain should be from sale of asset other than residential house.

You are fulfilling both the condition as you have sold ancestral agriculture land which is long term non residential house property.

Now the question is that whether you can save tax even if you have a other house on date of transfer of agriculture land ?

The News is good ,you can invest in residential property and can save tax on long term capital gain tax on sale of agriculture land even you already have a residential property with you.Means if you have a house already with you even then you can save tax under section 54 F .

Capital gain calculation : To calculate Holding period for the purpose of capital gain ,the period of holding of your father ,grand father ,.........will also be included means it is LONG term property.But the Cost of indexation will be available to you only from when it is being transferred to you.Cost of land of previous owner will be taken and if purchased before 01.01.1981 then cost price or market value as on 1.4.1981 which ever is higher will be cost of that land . On this cost ,Indexation will be given .

Amount of Investment : U/s 54 F ,the net receipt from the sale of Land in the question has to be invested in a residential house property by
  • Purchase of new house before one year and with in two years from the transfer of above Land .
  • Construction of new house with 3 years from date of transfer.

if amount invested in house is less then net receipt from land then exemption will be available on pro-rata basis.

Capital gain scheme:If amount of capital gain arising from the sale of old asset(land here)is not used as per point above before the due date of furnishing of income tax return or furnishing of return which ever is earlier than the balance unused amount should be deposited in designated banks under capital gain account scheme 1988 .

if capital gain amount unused has not been deposited under the scheme then the amount of capital gain will be taxable in the previous year as long term capital gain it self no matter it is actually used by the assessee for the purpose with the period explained above .

if the amount deposited in capital gain scheme , wholly or partly has not been used with in the three year from the date of transfer of old asset and purpose given above then the unused amount will be taxable in the hand of the assessee in the previous year in which three years expires from date of transfer of old asset as long term capital gain.

Exemption withdrawal : after availing above exemption ,
  • if new house will be sold with in 3 years from purchase/construction of the house or
  • if you purchases another house other then new house with 2 year from transfer of old house or construct another house with in 3 years from date of transfer of old house
then amount exempted on purchase of new residential House will Be taxable in your hand as Long term capital gain in year in which above any of the above two happens.

Exemption through Investment in Bonds : You are also eligible to save tax u/s 54EC by investing in Bonds .Unlike residential House u/s 54 F ,In bonds Only capital gain amount is required to be invested.No need to invest net receipt.suppose yo have sold land at Rs 100/- and capital gain after indexation is 45 then in case of section 54F (residential House) you have to invest 100 where as in Bonds only 45 is required to be deposited to claim full capital gain tax exemption.Lock in period is Just Three Years but maximum amount that can be invested in bonds is limited to 50 lakhs.You can opt for this option with in 6 months from date of transfer of the land

Note :Agriculture land definition has been changed wef 01.04.2013 as under
(1) in an area within 2 kilometers of local limits of municipality etc., these 2 kilometers shall be measured aerially, and population of municipality etc. is more than 10,000 but not exceeding 1,00,000; or
(2) such land should not be situated within 6 kilometers of the municipality having population of more than 1,00,00 but not more than 10 lacs; or
(3) such land should not be situated within 8 kilometers if population of municipality etc. is more than 10 lacs.

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    1. u can invest the sale proceeds in capital gains account scheme and save taxes.


  3. Rural Agricultural land is not covered under income tax at all ,so the same is exempted from tax

  4. Sir,
    We own ancestral agricultural land which is being cultivated since the past 50 years till date. It is situated in a village outside the municipality limits. nearest town is 5km from the village.
    my question is, would i have to pay capital gains tax on sale of this agricultural land. i want to reinvest it in a commercial property in the urban area.

    1. Rural Agricultural land is not covered under income tax at all ,so the same is exempted from tax.

    2. Thanks. I appreciate your prompt reply. But there is a confusion regarding an exemption on capital gains regarding the agricultural land being situated within 8km from municipality limits. which makes it a good case for CGT. Does this rule go for Rural areas also.

    3. Following Agriculture lands are taxable under capital gain

      1) Land situated in any area within the jurisdiction of
      municipality, municipal corporation, notified area
      committee, town area committee, town committee,
      or a cantonment board which has a population of not
      less than 10,000 according to the figures published
      before the first day of the previous year based on the
      last preceding census.
      2) Land situated in any area around the above referred
      bodies upto a distance of 8 kilometers from the local
      limits of such bodies as notified by the Central

      so 8 km is not a specific limit and fixed limit for all the cities but it is maximum limit which can be notified for cities.In case of few cities less limits has also been prescribed .you should download a file in the link given below.and check annexure "A" at page fifty on-wards in the downloaded file.


    4. Thank you Mr Gupta. My area does not fall in the list of cities mentioned in the annexure A. So I presume that it is not a notified town hence clause 2 (as mentioned in ur last reply) of CGT doesnot apply in this case and my property is free from capital gains tax.

    5. I have given my opinion /Facts and my views are favorable to you.But you must take second opinion as the amount involved may be huge

  5. Sir, I purchase agriculture land in urben area @ 1,90,000 in 1984 & sold the same land after converting to Non Agriculture @ 50,00,000 in 2011. Is there any capital gain tax, if yes how much & how can I save the capital gain tax.

    1. Capital gain will be as under


      First option is invest 3806800 (capital gain amount )in capital gain bonds u/s 54EC for three years or


      Invest amount in house if you do have only one house u/s 54F


  6. Hello,

    I have sold a urban "Residential Plot" (not house) recently and I am thinking of investing this amount in rural "Agriculture Land". Does this qualify for tax exemption from Long Term Capital gains?


  7. no such exception is available

  8. sir,

    my father purchased 2 acre agriculture land on 2002@400000,upon his demise ,We have sold that on fy10-11,jointly in the name of my mother and all brother and sister@1600000.situated in urban area(nagar panchayat) with population above 10k.
    will cgt implies to all of us?what will be tax treatment for this.

  9. Dear Sir, i had purchased 13 acres 100% agricultural estate for 45 lakhs in 2007 and was working accordingly. Now i am selling for 1.25 crores. This estate is false under rural area which is more than 8 kms away municipality limit.
    So, 1) is this amount taxable as per Income tax act? 2) what is the procudure for inward cash flow as per IT? So please advice me asap.

    1. No tax applicable on agriculture land as the sale of agriculture land is not covered under capital assets ,so no income tax applicable on gain on sale of agriculture land falls out side 8 km from municipal limits

  10. sale of agricultural land weher to show in ITR form (income tax)

  11. V hv sale. Our ancesstral land , 8 bigha out of 25 bigha in 2005 by converting it in non agriculture land& the rest in 2009.do v r liable to any tax.

  12. Dear Mr. Rajan, I had transferred funds from my NRE INR account to NRO INR fixed deposit in Feb 2011. Now i want this NRO INR deposit funds to be deposited back into my NRE INR Account as per the notification No.RBI/2011-12/536 A. P. (DIR Series) Circular No.117
    dated 7.5.2012 from RBI, but the bank is saying, this is possible only when a Audit certificate is issued. As per RBI notification there is no clause about this certificate. So can you please explain your point of view.

    1. First you should get clarification from Bank ,under which rule it is required and by whom it is to be issued , if they(bank) have received it(certificate) from any body else ?

  13. Sir,
    I have an agricultural land in a panchayath and the property is situated 13km's away from the nearest municipal town.Population of the said panchayath is more than 10000. Does this place can be construes as a rural area for the purpose of calculating Capital gains tax under income tax act

    1. There is no capital gain tax on rural agriculture land .From the facts given by you ,land is agricultural non rural land so capital gain on sale of land is applicable.However please note that population figure must be as per published census.

      Definition of agriculture land covered under Income tax is given below.

      1.Land situated in any area within the jurisdiction of municipality, municipal corporation, notified area committee, town area committee, town committee, or a cantonment board which has a population of not less than 10,000 according to the figures published before the first day of the previous year based on the last preceding census.

      2.Land situated in any area around the above referred bodies upto a distance of 8 kilometers from the local limits of such bodies as notified by the Central Government .

      Read more: http://www.simpletaxindia.net/2012/05/what-is-capital-asset-for-capital-gain.html#ixzz1x29KOlZx

  14. Dear Sir,

    I sold my ancestral house (bought plot in 1973 @ Rs. 500/- only and got it constructed by 1977) located in my village which is far away from the municipality limits (8 KM). I sold the house at 2850000/-. And then after purchased the agriculture land out of this money in the village too. I did not require the house as I started living with my son who got his new house constructed. Does the sale of house attract capital gain tax.

    1. Yes, sale of house attracts capital gain . Only sale of agriculture rural land is not covered under capital gain but all house even in village is not exempted .

      Further capital gain from house can not be set off with agriculture land purchase.

      However if you can prove that you have sold agriculture land not house then no capital gain attracts.

      Further to save capital gain you have to invest capital gain amount in new house under 54 section or 54EC capital gain Bonds

  15. I had a rural agricultural land which was compulsarily acquired by the UP Govt for the Yamuna Expressway. The compensation paid to me is not a sale of capital asset. Where do I show the exempt income in my ITR-2 return form for 2012-13?

    1. As per income tax act rural agriculture land is not a capital asset so it is not an exempted income but a capital receipt only . so no need to show it in income tax return .

      However if want to show then appropriate column in ITR-2 is

      (sheet EI) Schedule EI Details of Exempt Income (Income not to be included in Total Income)
      sr number 5

  16. I have received the compensation for compulsory acquisition of rural agricultural land for Yamuna Expressway from the Govt of UP. Where do I show this compensation amount as Exempt Income in an ITR-2 form for 2012-13?

    1. No need to show in ITR form , if you want to show , show it in sr no 26 in ITr-1

  17. I had purchased farm land measuring half acre in the chennai outskirts for Rs.5 L in 1997. Now I wish to sell the same for about 4 Crores and invest in residential land and construct a house.
    I already own 2 residential properties.
    Please advise if I I will be able to avoid capital gains tax by investing the full sale proceed of the farm land in residential land / house within one year of sale.
    Thank you.

  18. My father had purchased the land in the year 1984 in a village in gurgaon and the land is 17km away by road from municipal limits. It was purchased for Rs100,000. now the cost as of today is approx 2.8 crore. Will i hav to pay any type of tax on it. if any how much. I hav a residential property in mumbai in my name, which was gifted to me by my mom in this year. I intend to buy 1 more residential house in mumbai, can i buy?

    1. if it is a rural agriculture land as per income tax act then no tax on it.

  19. sir can a buyer show purchased asset at lower then municipal value(Stamp Value)

  20. I purchased an agricultural land and converted it to non agricultural land. I sold this property to a company for commercial purpose. Can I take the credit of cost of conversion to non agricultural land as a deduction while calculating capital gains on Sale???

    1. In our you can deduct cost of conversion while calculating capital gain.

  21. Dear Sir,
    My father is selling agricalture land at Devanahalli(Bangalore dist) for Rs.72 lacs.
    Our land is located at Devanahalli town and it is with in 2KM far from the municipality limits.
    Planning to invest 50 lac on for below mentioned purpose.
    option 1. Plannig to buy 3 floor contructed house(which is in municipality limits, presently it is in

    in revenue 1.25 gunta land)
    Option 2. Planning to buy the revenue land out side municipal limits.
    option 3. Planning to buy the contructed house (which is having BMRD or DC converted)

    I request you advise us which option is best to aviod the tax and please brief on the same.

    Remaining 22 lac planning to build house our residentail purpose(presently we don`t have any house in our

    father name)
    Please let us your advise on the same.
    Thanking you very much.


  22. Dear Sir,

    My wife and me are farmers. We have purchased a agricultural land in February 2008 and selling it now in April 2013. As per the requirement of the purchaser we converting it to industrial NA (Non Agricultural Land) in February 2011. The land is situated in a rural area and outside the specified limit of a Notified Area, meaning thereby that it is a rural agricultural land. Now as per the IT law if the land is agricultural and outside specified limit there is no tax (capital gain or otherwise) to be paid. But as we have converted into NA use, please let me know whether the sale preceding will attract any taxes. If it attracts any taxes, is there any way to save the tax, i.e by investing in purchase of bungalow or agriculture land. We have two flats each on our name and agricultural land as well.


  23. Dear sir,

    I Have sold my anscestral Agriculture land in rural Area in Himachal Pradesh (India) on May 2012. Have I to pay any tax on sale proceeds received by me. Thank you sir.

    Suresh Bhardwaj

  24. Dear Sir,

    I have sold my ancestral agriculture land in rural area in Himachal Pradesh (India) in may 2o12. Have I to pay income tax on sale proceeds received by me. Thank you sir.

    Suresh Bhardwaj

  25. Dear sir,

    I have received sale proceeds for sale of anscestral agriculture land in rural area which is not taxable as advised by you in other cases. Kindly advise me in ITR-2 in which coloumn the received money is to be shown as I file ITR-2. If it is to be added in Gross income then in which column the deduction is to be claimed being non taxable amount. Thank you sir.

    1. profit/gain from rural AGRICULTURE land sale is out of the preview of income tax ,so no column is provided in any return

  26. Please publish answer to my question dated 26.4.2013 at 6.33 Pm as I have to file my return. The question was regarding sale of agriculture land in rural area in Himachal pradesh during may 2012, whether any tax has to be paid by me on proceeds of sale received. Inconvenience caused is regretted. Thank you sir.

    Suresh Bhardwaj

  27. I have 2 bigha land bought in 2007 for 30 lac. i want to sell the same for 1.4 cr. its under gram panchayat but 1 km from Lucknow city limit. how can i save taxes here?


  28. Dear Sir,
    Thanks for the information. I have one query. I sold a non agricultural land on 17 April 2013 after holding it for more than 4 years. I had booked a flat in early 2009 for which the registration happened on 24 Dec 2009, but got the possession of this flat only in Feb-2013. Can I claim advantage of "reinvesting in house property" to save long term capital gain tax relating to these transactions? As the actual possession date is within specified limit of 1 year before the land sell transaction, Can I claim investment in this flat from the long term capital gain arising from selling of the land? On the Income Tax website, it shows clearly shows that the act of giving possession is treated as transfer for the purpose of Capital Gain.


  29. Sir, my father has sold his rural agriculture land in the last year and he has invested that money in purchase of new flat in Noida in the name of his wife. Please let me know whether that is allowable under income tax scheme and i believe no income tax is applicable in that amount.

    1. no tax applicable on rural agriculture land 8km outside municipal limits