Many times to raise funds or start a business, people sell their ancestral agricultural land and invest elsewhere or want to start their own business. What is the rule of income tax on the money received by selling such land and how tax is collected on it. How can I save tax on this?
New Delhi. After the Corona epidemic, many people must have raised money by selling agricultural land or agricultural land to overcome the shortage of money or start their own business. In such a situation, the question arises whether the Income Tax Department collects tax on this money as well and how it can be avoided.
In fact, under the Income Tax Act 1961, any agricultural land is not considered 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 out of the provisions of income tax.
When is it taxed
If any agricultural land comes under the purview of municipality or cantonment board, whose population is not less than 10 thousand or comes within 2 to 8 kilometers of municipality or cantonment board, whose population is between 10 thousand to 1 lakh So on selling such agricultural land, capital gains tax will have to be paid.
Although it is not yet clear in the income tax provisions that when the sale of agricultural land will not be taxed and when it will be taxed, but if the land outside these two cases is sold then it will not come under the tax net. If agricultural land is treated as a capital asset, then you may have to pay long term capital gains tax on selling it. 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, then you can avoid paying tax with this money by buying another agricultural land within two years. If you are not able to buy another agricultural land within two years, then before filing income tax return under section 139, you can deposit that amount in capital gains account scheme. 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.
Section 54F: Even if you build a house with the money received from the sale of agricultural land, it can be claimed for LTCG exemption. If you cannot invest this amount in the construction of the house within the stipulated time, then you can deposit it in the capital gains account scheme of the bank. It has to be kept in mind here that the amount you will invest in the construction of the house, will be exempted. Also, the taxpayer should not own more than one house.
