Capital gain on complusory acquisition of agriculture land

The assessee has an agriculture land situated outside the municipality limit. Now the land is compulsory acquired by the Essar during the Accounting year 2006 - 2007 and part payment of compensation was made to assessee. The Gujarat Government has declared it as notified area vide notification GH 4/97(3)(GID)/1096/866/G-1 dtd. 30/01/1997.  A scan copy of the notice is attached herewith. Now the income tax department has issued notice to pay income tax on the compensation received. Sir, i want to know that whether the agriculture land compulsory acquired is taxable ? Wether the assessee is liable to pay Capital Gain Tax ?

Chartered Accountant

As per my knowledge, Capital Gain on Compulsory Acquisition of Agricultural land is exempt u/s 10(37) of the Income Tax Act, 1961. But the Agricultural land must have been used for Agriculture purpose for the preceding to previous years from the year of compulsory acquisition by the Assessee or hi parents.




Devendra Kulkarni


The agricultural land is exempt if it is used , for 2 years  ,preceding to the compulsory acquisition , for agricultural purpose, by the assesee or his parents

Finance Manager

There must be compulsory acquisition of land and building forming part of an industrial
􀂄 The land and building should have been used by the assessee for purposes of the
business of the industrial undertaking in the 2 years immediately preceding the date of
􀂄 The assessee must purchase any other land or building or construct any building (for
shifting or re-establishing the existing undertaking or setting up a new industrial
undertaking) within 3 years from the date of transfer.Quantum of exemption
􀂄 If cost of new asset ≥ Capital gains, entire capital gains (short-term or long-term) is
􀂄 If cost of new asset < Capital gains, capital gains (short-term or long-term) to the extent
of cost of new asset is gain on Agricultural land is exempt from tax.

CA in Practice- Direct Taxation


Treatment on Capital Gain arising on Compulsory acquisition of Agricultural Land

Urban Agri Land

Rural Agri land/other than urban

If conditions are fulfilled then exemption u/s 10(37)           

(discussed below)


Otherwise taxable      

Not a Capital Asset so no question of Capital Gain.

Section 10(37) reads as follows:

" (37) in the case of an assessee, being an individual or a Hindu undivided family, any income

chargeable under the head “Capital gains” arising from the transfer of agricultural land, where—

(i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2 ;

(ii) such land, during the period of two years immediately preceding the date of transfer, was  being used for agricultural purposes by such Hindu undivided family or individual or a parent of his ;

(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India ;

(iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation.—For the purposes of this clause, the expression “compensation or consideration” includes the compensation or consideration en-hanced or further enhanced by any court, tribunal or other authority;”

Thus, the above Section provides for exemption from Capital Gain arising on compulsory Transfer of Urban Agricultural Land.

The following conditions are to be satisfied:

(i) The land is situated within 8Km from the limits of municipality or cantonment Board


The land is within the jurisdiction of municipality or cantonment board having population of 10,000 or more

(ii) The land was used for agricultural purpose during the period of 2 years immediately preceding the date of transfer by individual,huf or parent of the individual.

(iii) The transfer of land is pursuant to compulsory acquisition under any law or  approved by CG or RBI

CA final CWA

actully deepak,


Elligible assesee
Individual or HUF

Capital gains on transfer of agricultural land situated in area specified in item (a) or (b) of section 2(14)(iii)

Condition for claiming Exemption:

  1. The capital gains must arise from compulsory acquisition of agricultural land held in an urban area and compensation is received on or after 1st April, 2004

  2. Such land was used by the HUF or in case of individual by himself or his parents, for a period of 2 years immediately preceding the date of transfer.

  3. Such transfer is by way of compulsory acquisition under any law, or a transfer whose consideration is determined or approved by the Central Government or the Reserve Bank of India.

  4. The consideration or compensation for such transfer is received by the assessee on or after 1st April, 2004.

If assesses fulfill all the above condition, he will entitle to receive exemption of entire amount

Systems Analyst

1.If The Compensation Or Consideration For Such Transfer Or Acquisation Is Enhanced Or Further Enhanced By The Court,Tribunal Or Any Other Authority Then The Capital Gain Arises.

Suppose The Central Government Fixed The Price As Rs1000/Sqr Mtr But The Court Or Tribunal Or Any Other Authority Increased It To Rs 2000/Sqr Mtr. Then The Assessee Is Liable To Pay Capital Gains On The Amount Increased.

2.If While Getting Compensation You Received Any Interest On That Amount By The Govt Then You Have To Pay The Tax For That Interest Also.

Suppose Your Compensation Was 200000 And You Received 230000 Then 30000 Will Be Treated As Tax And You Will Have To Add This Interest In Your Income While Filing The Return.




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