I had a residential land that I purchased in the year 2005 and sold in 2013(after 31st march).
Now from that profit (Long Term Capital Gain) I bought agriculture land which comes within 8kms from the local municipality.
Now as per this document (https://incometaxindia.gov.in/Archive/HowtoComputeyourCapitalGains_18062012.pdf) my land should not be called an agriculture land. But in the registry it is mentioned as (Type of land) Agriculture Land.
On this land I made a small house of 1 BHK and at the same I don’t have any other house in my name other than this. So basically from the capital gain I purchased an agriculture land and made a small house on the same.
Now within 3 months I sold 1/3rd of this land (on which the house is not made) to someone else and again I made the profit (short term capital gain) and I have not invested this gain anywhere.
Now I am confused that on which part I have to pay capital gain tax. 1st one or 2nd one or both.
Let me clarify by assuming each condition on which I have to pay tax.
Suppose I made the capital gain from 1st transaction (selling residential land) and investing in agriculture land so by the rule of law (without clearly understanding what is agriculture land if it comes under urban limits) then I have to simply pay capital gain tax on the whole profit I made from 1st transaction as it is not invested in any residential property.
Now If I take this case that means my land is called the agriculture land and at the same time there is another law that says if you sell any agriculture land then you don’t have to pay tax as it is not called capital gain. Now by this logic I have to pay tax on my 1st transaction but not in the 2nd transaction.
Now let’s take second case where I bought agriculture land (but by definition of agriculture land it will not be called agriculture land and will be called capital asset) and I made a house for me where I stay too and when I sold 1/3rd of this land to someone else then profit made in 2nd transaction will be considered as short term capital gain and only on that I will have to pay tax.
Now if someone suggests me to pay tax on both the transactions then I would like him/her to clear me how and why because for the benefit of the government how can they say at the same time when it suits them it is called agriculture land and second time residential land.
CAclubindia
