Capital Gain Tax liability on sale of agriculture land

We had purchased an agriculture plot for Rs.20000/- in 1983 and sold in 2011 for Rs.20,00,000/- We also purchased another agriculture plot for Rs.800,000/-2011.What are our tax liability?Where can we put the balance money in which notified bonds if tax has to be reduced?

asked Jun 16 '11 at 20:08 by ANAND 1111


Your land will not be counted as capital asset if Land is outside the jurisdiction of a municipality area or not even within eight kilometers of municipality area. In the above case, there won't be any income tax liability on sale of land.

But if land falls under urban area, long term capital gain will apply here and a 20% income tax is payable on capital gains with indexation calculations. Following is the computation of same.

Purchase Year = 1983-84
Purchase Cost = 20000
Cost Inflation Index (CII) for purchase year = 116

Sale Year = 2010-11
Selling price = 2000000
CII for sale year = 711

Indexed Purchase price = 20000 x (711/116) = 122586
Long term capital gain = 2000000 - 122586 = 1877414
Income tax on capital gain = 1877414 x 20% = 375482.8

To save this income tax fully, a new agricultural land has to be bought for at-least 18,77,414 Rs (under section 54B). Or a new residential house/flat can be bought for 20 lacs (under section 54F).

As you already purchased agricultural land for 8 lacs, you will be liable to pay tax on remaining 10,77,414 Rs at the rate of 20% plus education cess.

Under 54EC, You can invest the sale consideration amount into capital gain bonds to save income tax. So if you buy capital gains bonds from NHAI or REC for 20 lacs, there won't be income tax in that case too.

answered Jun 16 '11 at 23:47 by pankaj 5.2k320

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Asked: Jun 16 '11 at 20:08

Seen: 4,674 times

Last updated: Jun 16 '11 at 23:54