• Tax on sale of land

My question is on long term capital gain . how to save it? 

I have a 3380 square metre land . i am doing agricultural activities from last 20 years. the land lies withing 2 km aerial distance of our muncipality . our muncipality has a population of over ten thousand ... so i know that the sale of this land attracts tax.
Now telling further i bought this land for two thousand ruppess 20 years ago . what i mean to say is any indexation applied doesnot make much difference to the tax value . so indexation is of no use in my case .

Now i tell u the way in which i am planning to sell my land .i have made agreement with the parties .and all deeds will be registered by the end of this month .

Out of 3380 metre 

1) 2330 metre land is sold as agricultural land . the cirle value of which is 26 lakh 50 thousand.and the sale deed will be made at the circle rate only .

2) remaining 1150 metre is sold in 3 plots of 375 metre each ....each plot sale value is 23 lakh . so the sale deed will me made at 23 lakh that is the circle rate .

So the total value is 26 + 3×23 = 96 lakhs

This is the circle value and it is near about the same value at which i have sold.

At present i have one house at my name . 

Now i have read that the sale value can be reinvested in a residential house to save tax. now i want to ask some questions 

1) can i invest the whole money i recieved that is 26 lakh from agricultural and 69 lakh from plots in a single residential house of 95 lakh to save the tax.

2) if i cannot do like i mentioned in point 1. like i cannot combine agricultural and plot value .. can i invest 69 lakh which i recieved from sale of 3 plots in a residential house and pay tax on the value of agricutural sale .

3) if i cannot invest like in both 1and 2 . it clearly means that i can only invest either 26 lakh from agricultural sale or 23 lakh from any one plot sale and on rest of the sale value i have to pay tax . 

If point 3 is true can i do onething i sell the agricultural land from my name ... and then transfer remaining 1150 metre to the name of my 3 son .....and then my 3 son sell that to the party and then each of them buy a flat of 23 lakh each to save the tax ... none of my sons have any land registered to them.
Now one more thing if i sell the land this febrary . i know the money is to be invested in 2 years from the date of sale . till then it has to be kept in bank . i will take me some 3-4 months to buy the new house . have i deposit the money in bank this march because the fiscal year is from april to march . or there is no need to deposit?
Asked 7 years ago in Taxation

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1 Answer

Deduction under Section 54B from Capital Gains arising out of sale of agricultural landThe agricultural land is situate in the area specified in item (a) and (b) of sub-clause (iii) of clause (14) of Section 2 is a capital asset. However, deduction under Section 54B of the I.T. Act provided from the capital gains arising from sale of such agricultural land, provided agricultural operations are carried out on such land for two years preceding the year in which the land is sold and the cost of new agricultural land purchased within two years of sale of such land is more than the capital gain

2) The new agricultural land which is purchased to claim capital gains exemption should not be sold within a period of 3 years from the date of its purchase.

In case you are not able to purchase agricultural land before the date of furnishing of your Income Tax Return – the amount of capital gains must be deposited before the date of filing of return in the deposit account in any branch (except rural branch) of a public sector bank or IDBI Bank according to the Capital Gains Account Scheme, 1988. Exemption can be claimed for the amount which is deposited.

3) you cannot invest sale proceeds of 96 lakhs in purchase of residential premises

4) you cannot invest sale proceeds of Rs 69 lakhs in purchase of residential house

5) you are at liberty to execute gift deed in favour of your sons for agricultural land

6)consult a local CA

Ajay Sethi
Advocate, Mumbai
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