Capital gain (u/s 54)

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Myself_ketan (Querist)
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01 August 2011 What happens if Rural Land purchases for calming Deduction U/s 54, and Sold within a month/Year(but with in 3 years).

As sale of rural land is exempt from capital gain Tax.

And what if Part of Land sold and Part of Land is retain for construction of House Property.
Is it good to make two purchase agreement for Purchase of above land ( one for Sale and one for construction of House).

As there is violation of Sec. 54?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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02 August 2011 The deduction U/s 54 is available in respect of purchase of a residential house.

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If against the sale of any urban agriculture land , rural land is purchased , the deduction can be claimed U/s 54B.
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Deduction U/s 54B is available against purchase of rural land.
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Rural Land is not a capital asset, hence
on sale of it no capital gain would arise.
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To avoid practical difficulty, it is advisable not to sale such land immediately until the previous year ends.
It can be argued by the AO that Investment in Rural Land is not appearing in the balance sheet at the year end meaning there by the assessee is not entitled for 54B deduction.
To avoid this land should be sold in the next FY of its purchase.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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02 August 2011 And what if Part of Land sold and Part of Land is retain for construction of House Property.
Is it good to make two purchase agreement for Purchase of above land ( one for Sale and one for construction of House).

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To avoid litigation, one agreement is advised. On sale of part of the land , the character of rural land will not change, unless the whole of the land has been converted into residential.

So at the required stage part of land can be converted into Non Agriculture Land.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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02 August 2011 I agree with the expert

Myself_ketan

Myself_ketan (Querist)
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03 August 2011 But what to do to avoid LTCG from sale of House Property.

and purchase URBAN LAND to construct House Property

And Part of URBAN LAND sold and Part of Land is retain for construction of House Property within a 1 YEAR.

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