Tax on Non-Agri Land(indus) Transfer from Agricultural Land

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CA Kalpesh Vekariya (Querist)

18 July 2011 Sir,
One Individual has transferred one agricultural land into Non agricultural land for Industrial purpose and divided into 11 plots and then some of plots sold to others.

can individual get benefit by purchasing another agricultural land because above land is converted for Industrial purpose plots ?

if above land is within and not within the municipality limits what is tax consequances?

what can be tax planning of above.
and if we have to do above transaction now what can be tax planning.

Humble Thanks for solutions

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

20 July 2011 URBAN AGRICULTURE LAND :
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In case of urban agriculture land which is converted into stock in trade, it is deemed as transfer by way of conversion.

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Capital Gains will arise when the plots are sold. On sale of 1 plot proportionate capital gain may be calculated.

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The important thing to be noted here is that, capital gain will be charged to tax in the year of sale. FMV on the conversion date will be considered as Sales Consideration for CG. However , for indexation & calculation purpose year of conversion and year of acquisition of land will be considered.

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Difference of Sales Consideration of plots and FMV on conversion date is treated as business income.
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In case of Long Term arising on such transfer by way of conversion, exemption U/s 54B will be available subject to the condition that the land must be used by the assessee or any of his parent in the 2 years immediately preceding the date on which the transfer took place.

The investment can be made within the 2 years OF TRANSFER and for more details Section 54B can be referred for other conditions.

WHAT IS THE DATE OF TRANSFER ?

In such type of cases Date of conversion and Date of Actual Transfer through sale
may create confusion. The asset has lost its "Capital Asset" character on the date of conversion, but it remains with the assessee even after such date.

So the date of transfer would be the date on which the asset has been sold by actual transfer.

Suggestions and opinions of experts are desired.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

20 July 2011 RURAL LAND
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Rural Land is not a Capital Asset.
I am of the opinion that section 45(2) is not having its applicability in the case of conversion of rural agriculture land.

In such a case, when the rural land is not sold as rural land, but as plots, then
the profit earned from selling the land in the form of plots, can be treated as Capital Gains. Income can be taxed as LTCG or STCG, depending upon the holding period of Rural Land.

This view require further confirmation from CAClub Experts.

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CA Kalpesh Vekariya

CA Kalpesh Vekariya (Querist)

25 August 2011 Thank you sir

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