Farm land outside specified limits not treated as capital asset for taxation

I bought a piece of agricultural land in Rajasthan in September 2015 and the purchase deed was notarised. I want to sell it now. If I sell it through a notarised deed, will I be exempted from claiming capital gains tax by investing in another property? Or is the registered sale deed necessary for claiming capital gains tax?

—Name withheld on request

It should be noted that agricultural land situated outside specified area limits is not treated as a capital asset and, therefore, capital gains tax is not applicable on the sale of such land. There are specified agricultural lands that are considered as capital assets and sale of only such agricultural lands would be subject to capital gains. If such agricultural land was held for more than 24 months prior to the sale, the gains would be taxable as long-term capital gains (LTCG). LTCG is calculated as the difference between net sale consideration (actual sale consideration less brokerage expenses) and the indexed cost of acquisition and improvement.

Further, exemption from LTCG on sale of agricultural land can be sought under Section 54F of the Income-tax Act, 1961, by re-investing the net sale consideration, in a new residential house situated in India, within 1 year prior or 2 years after the date of transfer of the agricultural land (if the new house is purchased) or within 3 years (if the new house is constructed), subject to satisfaction of other conditions specified. If the cost of the new residential house is more than the net sale consideration, then the whole of the LTCG shall be exempt. Otherwise the LTCG will be exempt in the same proportion that the cost of the new residential house bears to the net sale consideration.

Also, an exemption from LTCG on sale of agricultural land can be sought under Section 54B of the Act, by reinvesting capital gains in another agricultural land, within 2 years from the date of transfer of agricultural land, subject to satisfaction of other conditions specified. If the cost of the new agricultural land is more than the capital gains, then the whole of LTCG shall be exempt. Otherwise, LTCG will be exempt up to the cost of the new agricultural land.

Also, exemption can be claimed under Section 54EC by investing capital gains in notified securities subject to satisfaction of other conditions specified.

Generally, sale of an immovable property can be effected by a registered sale deed along with payment of applicable stamp duty, depending upon the state in which the property is situated. However, you should seek legal opinion on the appropriate documentation and stamp duty implications for the same. From an income tax perspective, the taxability of sale of agricultural land would not depend solely on whether the sale was effected through a notarised deed or a registered deed. The entire transaction and facts of the case would need to be considered and reviewed.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com