Capital gain computation on agricultural land sale probably in urban locality

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Querist : Anonymous

Querist : Anonymous (Querist)

11 March 2015 Kindly tell me if a Agricultural Land in Urban locality (not sure) was purchased in Mar 2010 at 2 Lakhs and Sold in Apr 2015 say for 15 Lakhs what is the Capital Gain Payable. secondly whether with indexation or without indexation computation it will be beneficial. Thirdly if the Money is kept in a separate savings account ( not opening a Capital Gain Account) and is utilized in paying within one year on following usage i) partly to end the Top up Loan against a Property ii) Partly but more than Capital Gain amount on under construction property installment say a Flat. In such case do I have to pay any Capital Gains Tax to Income Tax department?. Whether such setoff of capital gain is allowable , and how to reflect such transactions in my income tax returns.

Querist : Anonymous

Querist : Anonymous (Querist)

12 March 2015 Just wanted to check ...

a) Capital Gain with Indexation if calculated

Indexed cost of acquisition is 2 L X April 15 say index 1050/ March 2010 index 632 i.e Rs. 332000

Capital Gains= 15 L-3.32L= 11.67 L - Tax @ 20% = 2.34 Lakhs

b) Capital Gain without Indexation

Capital Gains= 15-2= 13 lakhs @ 10% =1.3 Lakhs

Kindly tell whether the understanding is correct and whether 1.3 Lakhs can be paid in new asset EMI for CG Tax exemption???

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2015 Is nobody there who can guide on the above issue, please

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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18 July 2024 Let's break down the queries regarding the computation of capital gains on the sale of agricultural land in an urban locality, and the implications of investing the proceeds in other assets for tax exemption:

### Calculation of Capital Gains:

1. **Indexed Cost of Acquisition**:

- Cost of acquisition in March 2010: Rs. 2,00,000
- Cost Inflation Index (CII) for April 2015: 1050
- CII for March 2010: 632

Indexed Cost of Acquisition = Cost of acquisition × (CII for April 2015 / CII for March 2010)

Indexed Cost of Acquisition = Rs. 3,32,278

2. **Capital Gains Calculation**:

- **With Indexation**:
Capital Gains = Sale Consideration - Indexed Cost of Acquisition

Capital Gains = Rs. 11,67,722

Tax on Long-term Capital Gains (LTCG) with indexation = 20% of Rs. 11,67,722
Tax on LTCG = Rs. 2,33,544.40

- **Without Indexation**:
Capital Gains = Sale Consideration - Cost of Acquisition

Capital Gains = Rs. 13,00,000

Tax on LTCG without indexation = 10% of Rs. 13,00,000
Tax on LTCG = Rs. 1,30,000

### Utilization of Capital Gains for Exemption under Section 54:

- **Section 54 Exemption**: Under Section 54 of the Income Tax Act, if you want to claim exemption from LTCG tax, you need to invest the amount of capital gains (not the entire sale proceeds) in specified assets:

- **Purchase of Residential Property**: You can invest the capital gains amount in purchasing a residential property within 1 year before or 2 years after the date of sale, or construct a residential property within 3 years after the date of sale.

- **Usage of Capital Gains**:
- You can use the capital gains amount to pay off the Top-up Loan against a property.
- You can also utilize it for paying installments on an under-construction property (like a flat).

- **Conditions**:
- The investment should be made in the specified time frame.
- The new property should not be sold within 3 years of its acquisition or construction to retain the tax exemption.

### Reflecting Transactions in Income Tax Returns:

- **ITR Filing**: In your Income Tax Return (ITR), you would need to mention the details of the sale of agricultural land and the computation of LTCG.
- **Exemption Claim**: You should also declare the investment made to claim exemption under Section 54. Provide details of the new residential property purchased or under construction and the amount invested.

### Conclusion:

- **Tax Calculation**: Your understanding of the tax calculation appears correct. The LTCG can be computed both with and without indexation, and you have correctly identified the tax rates applicable.
- **Exemption and Setoff**: Yes, you can use the capital gains amount to pay off loans or invest in under-construction property to claim exemption under Section 54. Ensure all conditions are met and properly documented.
- **Tax Compliance**: It's advisable to consult with a tax advisor or chartered accountant to ensure proper compliance with tax laws and to accurately reflect these transactions in your income tax returns for the year of sale and subsequent years when claiming exemptions.

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