Ltcg on agriculture land

As you said it is an 'agricultural land' as per tax laws, I am assuming that it will not be a capital asset defined u/s-2(14). Hence, there would not arise any capital gain on transfer of agricultural land, even if it has been sold for a consideration less than Circle Rate, provided it has been held as an "investment" & not as "stock-in-trade", else the sale of such land (whether agricultural or non-agricultural) is taxable as "business income" u/h "PGBP" and no exemption under The Income Tax Act,1961 is provided in this regard.

However, if it's not an agricultural land as per the provisions of sec-2(14)(b)(iii), then it will be taxable u/h "Capital Gains" but an exemption of "capital gain" u/s-10(37) will be allowed, if the conditions provided in sec-10(37) are fulfilled.

Note:

(1) As per sec-2(14), "capital asset" means—

 (a)  property of any kind held by an assessee, whether or not connected with his business or profession;

(b)  any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

but does not include—

 (i)  any stock-in-trade [other than the securities referred to in sub-clause (b)]], consumable stores or raw materials held for the purposes of his business or profession ;

 (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a)  jewellery;

(b)  archaeological collections;

(c)  drawings;

(d)  paintings;

(e)  sculptures; or

(f)  any work of art.

[Explanation 1].—For the purposes of this sub-clause, "jewellery" includes—

(a)  ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b)  precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

[Explanation 2.—For the purposes of this clause—

 (a)  the expression "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section-115AD;

 (b) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);]

(iii)  agricultural land in India, not being land situate—

(a)  in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand ; or

(b) in any area within the distance, measured aerially,—

(I)  not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;]

(iv)  6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government ;

(v)  Special Bearer Bonds, 1991, issued by the Central Government ;

(vi)  Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.

Explanation.—For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever;

(2) The provisions of sec-10(37), is reproduced herewith:

"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 enhanced or further enhanced by any court, Tribunal or other authority"

Thanks Stranger, acutally laws words just go above my head. Can you explain me like a layman? Actually the land price is more than the normal circle rate. So I will be paying charges like stamp duty etc as per the circle rate but the land price is more than that for which i will not paying stampyduty and registration charges. Will it create a problem later on?

So as per your reply whatever be the income from the sale of agriculture land, irrespective of the circle rate, the income would be EXEMPT from the income tax? right?

Sir, as per the provisions of law, only sale of agricultural land, not being the land as referred in section-2(14)(b)(iii) in NOTE-1 above & held as "investment" is outside the purview of taxation as then it will not be a capital asset at all. "Held as investment" means you have bought the land for investment purpose are not engaged in the business of "trading of lands", which is held by you as "stock-in-trade" as then it will become taxable u/h " Profit & Gains from Business or Profession" & no exemption will be available to you under the IT Act, 1961. 

However, if the agricultural land, sold by you, is in the nature of land as referred in section-2(14)(b)(iii) above, then you can claim exemption u/s-10(37), if conditions as mentioned in NOTE- 2 above gets satisfied OR exemptions u/s-54B, 54EC or 54F, provided all the conditions of the relevant section gets satisfied, else it will be taxable u/h- "Capital Gains".

In case sales consideration is shown less than the circle rate, then as per sec-50C, capital gain tax will be chargeable on deemed sales consideration i.e., "Stamp Duty Value" or "FMV", whichever is lower. But in your case you are showing sales consideration equals to circle rate in sale deed. So Sec-50C not applicable in your case.

As far as the higher circle rate is concerned, it all depends on the "Sale Deed". The consideration, which is mentioned in it, will be considered for payment of stamp duty, registration charges, etc. It's a general practice to show the consideration upto circle rate in the "Sale Deed", to save the stamp duty, registration charges from the buyer side and less capital gain tax, if applicable, from the seller side.

And as far as complications or level of risk is concerned, regarding the "amount" which you will have receive in cash in excess of circle rate, it depends upon the 'amount' of excess money & how you divert or utilise or invest it in future, as it's in the nature of "Black Money". I can neither discuss the ways of diversion of "Black money" nor advise you to do so in this platform, rather would like to advise you to take the help of a professional in this regard to avoid any complications in the future.

Hope your doubt is cleared now Sir...