If you have made a profit by selling urban agricultural land, then you are taxable. But you can save tax in these three ways.
If you have recently sold an urban agricultural land and have made long-term capital gains (LTCG) from it, then you get some options to get exemption in your tax. These options can help you reduce tax.
According to an article written by tax expert Balwant Jain in the newspaper Mint, agricultural land, which is located in the urban area and is not recognized for tax as a capital asset, is taxed at LTCG. In such a situation, an individual or Hindu Undivided Family (HUF) can use three major options to get tax exemption.
First option
You can get exemption under section 54EC. For this, you have to invest your capital gain amount in capital gain bonds of financial institutions like National Highway Authority (NHAI), Rural Electrification Corporation (REC), Debt Reconstruction Corporation (RFC) and Power Finance Corporation (PFC). This investment has to be made within six months from the date of sale.
Second option
You can get exemption under section 54B. For this, you have to use your capital gain amount in the purchase of new agricultural land. This purchase should be completed within two years from the date of sale.
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Third option
If you neither want to invest in capital gain bonds nor buy a new residential house, then you can invest your capital gain in the purchase of agricultural land. Its provision has been made in section 54B.
To take advantage of these options, ensure that your amount is used at the right time. If some part of the amount is not used within the stipulated time limit, then that portion has to be deposited in the capital gain account. By understanding these tax exemption options and applying them correctly, you can reduce your tax liability substantially. With this information, you can manage your financial decisions better and move one step closer to tax savings.
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