Capital gain

Originally posted by : saurabh
	Hello friends I have a piece of agriculture land around 3 Acre. I have made an agreement with Development authority (State govt.) in which development authority will develop the land into plots. The development authority will keep 50% of land/plots with them self and rest plots return back to me. I have to made an agreement otherwise my land is compulsorly acquired and i get lower amout. Now my area of concern is how can i save my capital gain. I wish to take agriculture land but Sec 54B may not be avaliable. Perhaps their would be any case law regarding it but how can I get it.

Sec. 2(14) defines Capital Asset in Income Tax Act.

Capital asset means property of any kind held by an assessee whether or not connected with his business or profession but does not include:

Rural Agricultural Land, ie., agricultural land which is not situated within the specified area as mentioned U/s 2(1A) of Income Tax Act.

Rural Agricultural Land means an agricultural land in India:
If situated in any area which is comprised within the jurisdiction of a municipality which has its population less than 10,000 as per the last published census,

OR

If it is situated outside the limits of municipality i.e.,  it should not be situated within 8 km from the limits of municipality.

So in your case if it is rural agricultural land then no need to worry because it is not a capital asset consequently no capital gain tax arises.

If it is not rural agricultural land then you need to pay tax on capital gain, but you can save you tax under below section:-

Sec. 54EC: Capital gain arising from sale of any long term capital assets (minimum holding period of 3 years) => You need to invest in “Bond of NHAI or REC” => Exemption will be as follows but limited to Rs.50 Lacs:

Investment > Capital Gain => Whole of capital gain

Investment < Capital Gain => Amount of investment

Sec. 54F: Capital gain arising from sale of any long term capital asset other than residential house property, provided assessee should not own more than one house except the new one => you need to purchase the house property before 1 year of transfer OR within 2 year from the transfer date OR construction should be completed within 3 year => Exemption will be as follows:

Investment in New Asset X Net Sale Consideration

              Capital Gain