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Ask Mint Money | Any gain arising from sale of agricultural land is not taxable

Ask Mint Money | Any gain arising from sale of agricultural land is not taxable
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First Published: Wed, Oct 12 2011. 10 28 PM IST
Updated: Wed, Oct 12 2011. 10 28 PM IST
I am retired and have Rs 3 lakh in my National Savings Certificate (NSC) account in the post office. I want to redeem it. Is there a way to avoid tax deduction?
—Subrat Pande
As per the provisions of section 10(15) of the Income-tax Act, any income earned by way of interest, premium on redemption or any other payment on certain certificates notified by the central government in this regard is not taxable. One of the notified certificates is post office NSCs (7 or 12 years). Accordingly, if you have invested in the notified certificate, any income arising on redemption of such certificate shall not be taxable in your hands.
I have an ancestral farmland. This farmland was earlier a non-saleable one but recently some change in local laws has made it saleable. I want to sell off this land now. What will be the tax treatment for the same and how shall it be computed?
—Sandip
Capital gains arising from transfer of a capital asset is chargeable to tax under section 45 of the Income-tax Act. As per section 2(14) of the Act, an agricultural land is not included in the definition of capital assets and, therefore, any gains arising from the sale of agricultural land is not taxable. If the farmland inherited by you falls within the definition of an agricultural land under section 2(14), then capital gains arising on sale of such farmland shall not be charged to tax.
In case the farmland does not qualify to be an agricultural land, then its sale shall be liable to capital gains tax. If the period of holding of such farmland is more than 36 months, then the farmland shall qualify as a long-term capital asset and the cost of acquisition/improvement shall be indexed by applying the cost of inflation index of the year in which the farmland was acquired by your family. In case the same was acquired before 1 April 1981, then you have an option to take either the cost of acquisition or the fair market value as on 1 April 1981. The long-term capital gains computed after deducting the indexed cost of acquisition from the sale consideration shall be taxable at 20%. However, there are certain provisions under the Act, whereby such long-term capital gains may be exempt from tax to the extent the sale consideration is reinvested in certain specified assets and other conditions specified therein are complied with.
Nitin Baijal is director, BMR Advisors
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mintmoney@livemint.com
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First Published: Wed, Oct 12 2011. 10 28 PM IST