| Assessee sold an urban agricultural land and invested the capital gain in rural agricultural land | ||||||||
| to claim deduction u/s.54B | ||||||||
| and immediately sold such newly acquired rural agricultural land. | ||||||||
| Tell me the tax treatment for the above. | ||||||||
| Thanks in advance. | ||||||||
Dear priya
1. As the Assessee sold the land within 2 years of purchase then the capital gain which is exempted will be taxable subject to that the Land must be URBAN LAND.
2. If the land is an agricultural land then there is no transfer of capital asset arises u/s 45. So on sale of agricultural land no such capital gain is computed.
in this case the capital gain which was exempted earlier under section 54b shall be reduced from the cost of new agricultural land for the purpose of computation of capital gain in respect of the new agricultural land and it shall be short term capital gain
SECTION 54B
Applicability:- Individual [ STCA, LTCA ]
Provision:- Sec 54 B provides exemption from capital gains arising from transfer of capital asset(LTCA or STCA) being agricultural land in urban India(in rural India is not a capital asset hence not taxable), if the assessee purchases another agricultural land (in rural or urban India)within 2 years from the date of transfer of original agricultural land.
Exemption Available: Cost of new agricultural land subject to CG.
The agricultural land must be used by the assessee or his parents for agricultural purposes for a period of 2 years immediately preceding the date of transfer. Therefore to claim exemption 2008-09 must have been used for agricultural purpose since 2006-07).
CGDS SCHEME
In order to claim exemption the assessee may either purchase agricultural land within return filing date or deposit the amount unutilized in Capital Gain Deposit Scheme. Any amount remaining unutilized in CGDS on expiry of 2 years (in 54 it is 3years) from date of transfer of original asset would be taxable CG could be short term or long term depending the original exemption was against LTCG or STCG.
Transfer within 3 years-COA to be reduced by exemption claimed earlier
If the new agricultural land is sold within 3 years from the date of its purchase, then COA of new agricultural land shall be reduced by amount exempted earlier. CG shall be always short term and tax will be calculated under normal provision since no STT levied. Deduction under chapter VI A available.
Since exemption is available for both STCA and LTCA it is possible that after selling the new agricultural land within 3 years the assessee may again purchase another agricultural land within 2 years to claim exemption on STCG.(Not possible u/s 54 as only LTCG included). For this again CGDS will be applicable.
If new agricultural land is purchased in rural India and transferred within 3 years, then too exemption u/s 54 cannot be withdrawn since agricultural land in rural India is not a capital asset and therefore no CG on it.
Provision is violated only if transferred. If converted or mortgaged, exemption shall be available.
if dere was no taxability criteria dis sec wud hv nt arised thus it wud attract short term capital gains to b charged at normal slab rates
CAclubindia
