To overcome the financial crunch or to start their own business, many people must have raised money by selling agricultural land or agricultural land. In such a situation, the question arises whether the Income Tax Department collects tax on this money also and how it can be avoided. Let’s know about it in detail.
Actually, under the Income Tax Act 1961, any agricultural land is not considered as a capital asset, unless it fulfills certain provisions. In such a situation, if your land is completely agricultural land, then the amount received by selling it will be completely outside the provisions of income tax.
When is it taxed
If an agricultural land falls within the jurisdiction of a municipality or a cantonment board with a population of not less than 10,000 or within a radius of 2 to 8 kilometers from a municipality or a cantonment board with a population of between 10,000 and 1 lakh So capital gains tax will have to be paid on selling such agricultural land.
By the way, it is not yet clear in the Income Tax provisions as to when tax will not be levied on selling agricultural land and when it will be levied, but if the land outside these two cases is sold then it will not come under the ambit of tax.
If agricultural land is considered as a capital asset, you may be liable to pay long-term capital gains tax on its sale. That too when you have kept the land with you for more than 24 months.
How to get tax exemption
Section 54B: Under this section of the Income Tax Act, if you have earned money by selling agricultural land and have to pay long-term capital gains tax on it, you can avoid paying tax by buying another agricultural land with this money within two years.
If you are not able to buy another agricultural land within two years, then under section 139, you can deposit that amount in the Capital Gain Account Scheme even before filing income tax return. You will also get tax exemption on this.
Section 54EC: Tax exemption can be claimed even if you invest the capital gain from the sale of agricultural land in a bond within 6 months. In this way, LTCG can be availed on Rs 50 lakh in a financial year.
