CAPITAL GAIN TAX

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ketan thakrar

4 Points Posted on 06 November 2018

Three real brothers named A, B & C got ancestral or inherited agricultural land admeasuring 32476.00 sq.mtrs. in Rajkot municipal corporation area belonging to revenue survey no. 58 paiki in 2001.

In 2018 they have converted among this land admeasuring 23913.00 sq.mtrs.agricultural land in to Non Agricultural land for residential purposes. ( Remaining 8563 sq.mtrs. land remains agricultural land on revenue record i.e. 7-12 utara of Gujarat Rajya ) And they have subploting this outcoming N.A. land admeasuring 16261.00 sq.mtrs. in to subplots. And they have sold all these subplots to different buyers and revenue generates near about Rs.10.50 crore.

The Jantri rate of the said land in 2001 is Rs. 300 per sq.mtr. in 2001 and the same is Rs. 8500 per sq.mtr in 2018.

What are the ways to reduce or erase capital gain tax liabilities for these persons.
The persons intends to buy some other agriculture land in some other part of Gujarat with the money that they have received by selling the NA plots of their inherited agricultural land.

Replies (3)

Nitesh bind

Student CA Final

12692 Points Posted on 06 November 2018

Dear Ketan,

First of all, if the Sub Plotted lands are agriculture land that is in remote villages areas which population is below 10000, then there is no Question of Capital gain because that is Not a capital assets itself and that's why all the capital gain arises would be Exempt.

If that's not the case, You have further following options to reduce your capital gain burden:

1. As you said yourself You can purchase new land out of the consideration received within 2 years from date of sale then you will be allowed exemption u/s 54B upto the amount invested (means if you invest your entire CAPITAL GAIN then it will be Exempt).

2. You can invest the same amount for buying (within next 2 year) or constructing (within next 3 years) the New Residential House and you can claim exemption under sec 54F.

3. You can purchase certain specified bonds (e.g. bonds of NHAI or RECL) within next 6 months and you'll be allowed exemption under section 54EC.

4. Also You can invest in the basic modes of deductions like 80C and 80D etc but that will give you a very little relief.

So in my opinion you should follow any of the Above suggestions to reduce you capital gains burden.

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Best Regards.

rama krishnan

12244 Points Posted on 07 November 2018

in my opinion
since the agricultural land lies in rajkot municipal corporation, it's urban agricultural land and qualify to be a capital asset. even if the agricultural land lies beyond the prescribed territory u/s. 2(14), it assumes the quality of capital asset when it's converted for non agricultural purposes and any income derived from it chargeable to tax.

the activities carried on by you is in the nature of trade in the nature of adventure and both capital gains and business income will be applicable in your case.
conversion of capital asset in to stock in trade is treated as transfer as per 45(2) and capital gains tax will be charged at the time of sale.
the fair market value of the property at the time of conversion will be treated as sale consideration