TO save tax on LTCG earned out of sale of agriculture land

Hi Pankaj, We have sold agriculture ancestor land and earned long term capital gain. Please suggest all the ways to save tax. I have discussed the matter with my friends & they suggested the following options:- 1. To purchase new agriculture land...pls suggest in how much time we have to buy the new land?? 1 a. Also, please suggest the lock in period we have to keep the new bought agriculture land & if we sell the newly agriculture land within the lock in period how much tax or penalty will be applicable on it?? 2. Investment in REC /NHAI Bonds within 6 months from the sale. Limit is Rs. 50 Lacs but we have sold the agriculture land in Dec 2011 so can we invest more in the bonds?? 3. Is there any more options other then mentioned above to save tax??

asked Jan 26 '12 at 01:04 by Sag 1344

Only 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.

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.

To save this income tax fully,, Under section 54B, you can buy another agricultural land anywhere in India with cost more than capital gains arising (computed by indexation method) from old land sale within two years of sale. Lock period for new purchase would be three years. If new land is sold before three years, capital gain benefit would be void and you would have to pay 20% income tax on long term gains.

You can also buy a residential house property for amount more than sale consideration value under section 54F. Possession of new house has to be taken within two years from land sale. If new property is not purchased by income tax return filing date, amount should be kept in capital gain account scheme.

Also, please follow below conditions for section 54F:

  1. Possession of new property must be taken within two years from sale of old property. Or new house can be constructed within three years of sale.
  2. You should not be owning more than two residential house(flat/house/apartment) at the time of transfer of selling asset.
  3. If total residential houses owned by you is two (including new property), you should not buy another one within next three years of purchase. Or in next three years, total owned residential houses should not be more than two.
  4. New property should not be sold before next three years.

Under 54EC, You can invest the sale consideration amount into capital gain bonds to save income tax. Maximum 50 lakh can be invested in these bonds per financial year and investment has to be done within six month of sale. As you sold land in Dec, you can invest 50 lakh before 31st March, 2012 and rest 50 lakh in financial year 2012-13 but before end of six months from sale.

answered Jan 26 '12 at 16:55 by Pankaj Batra 5.2k320


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Asked: Jan 26 '12 at 01:04

Seen: 3,647 times

Last updated: Jan 26 '12 at 16:55