Capital gain on agriculture land after na conversion

Let's analyze the scenario related to capital gains on agricultural land after NA (Non-Agricultural) conversion with reference to Indian Income Tax rules:

Facts Recap:

1. Agreement to sell land on 1-Feb-2012 for Rs. 5 lakhs, amount received through cheque.

2. Agricultural land converted to NA in 2022.

3. Actual sale of land happened in 2023 (after NA conversion).

Queries:

a. What cost of acquisition should be considered? Cost as agricultural land or NA land as per 2001 valuation?
b. What stamp duty value to consider for capital gains calculation - of 2012 or 2023?

Answer a: Cost of Acquisition (Land valuation for Capital Gains)

• Cost of acquisition is based on the actual purchase price or the fair market value as on 1-Apr-2001 (if acquired before 2001) for long-term capital gains calculation.

• In this case, since the land was agricultural and converted to NA only in 2022 (after agreement but before sale), the cost of acquisition is based on the land as it was at the time of purchase or acquisition.

• Important: For capital gains, the cost is the price paid for the agricultural land, not NA land, even if the land is converted later.

• The cost will be either:

  • Actual cost if acquired after 2001 (use purchase price), or

  • Indexed cost based on 2001 valuation if acquired before 2001 (cost inflation index applied).

• Since agreement was in 2012, presumably the land was purchased before or at that time. The cost of acquisition is the agricultural land cost, not NA land cost, as the status at time of acquisition is agricultural land.

Answer b: Stamp duty value to consider for capital gains

• Stamp duty value (Circle rate) is used to determine Full Value of Consideration for capital gains if actual sale consideration is less than stamp duty value.

• The question is: which stamp duty value to take? 2012 or 2023?

• The Income Tax department considers stamp duty value as on the date of transfer (sale), i.e., 2023 in this case.

• Even though agreement was signed in 2012, the actual transfer and sale happened in 2023, so stamp duty value applicable is the stamp duty value in 2023.

• If stamp duty value as per 2023 is higher than sale consideration (Rs 5 lakhs), then stamp duty value will be considered as sale consideration for capital gains.

Additional Notes:

• Capital gains tax will be on transfer of land as NA land because the status of land at the time of sale (2023) is NA.

• Since agricultural land converted to NA before sale, the exemption under Section 54B (for agricultural land) will not apply.

• Long-term capital gains treatment applies if held for more than 24 months (for land).

Summary: