TAX TALK-23.02.2015-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
TAX ISSUES ON SALE OF ANCESTRAL AGRICULTURAL & NON AGRICULTURAL LAND
Query 1]
I have inherited some ancestral landed properties situated in a village. The land is originally acquired 100 years ago. The pattern of land is as under:
- Agricultural -Ac 6 .940 dec
- Non -Agricultural ( Homestead ): AC 0.248 dec
- Garden land where Mango trees existed a number of years back -Ac 8.210 dec
In all the above cases, the decision of the Court came during 2012-13 and the Mutation is under progress. I can sale the land after the Mutation. In addition to the above, I am likely to get Garden land of Ac 3 .420 dec where various trees were existing. These are under joint ownership. I will have to sale the same with mutual consent. I want to know about tax treatment & tax saving option on the sale value.
[Dr. Rabinarayan Patnaik- rnpatn@gmail.com]
Opinion:
- First of all, agricultural land received by you as a result of inheritance (even iif it is by virtue of a court decision) is totally tax free. Inheritance of a property in India doesn’t have any tax attachment.
- Subsequent sale of inherited property may attract capital gain tax. The tax treatment of agricultural land vis a vis non agricultural land is different. Entire profit on sale of agricultural land would be tax free if (a) it is a rural agricultural land & (b) it is used for agricultural purpose.
An agricultural land is considered as rural agricultural land if it is not situated in any area within the distance (measured aerially) of not more than:
a] 2 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
b] 6 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
c] 8 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
Rural agricultural land is outside the purview of capital assets and hence no tax is payable on sale of rural agricultural land. The land with mango trees would also be considered as agricultural land.
No similar tax benefit is available to profit arising on sale of
(a) urban agricultural land or
(b) non-agricultural land.
The profit on sale of urban or non agricultural land would be taxable under the head “Capital Gain”. In your specific case, the land is an ancestral property and for computing long term capital gain, you can adopt the market value of the land as on 01.04.1981 as the cost of acquisition. You are eligible for the indexation benefit also. It may be noted that the indexation benefit would be available from the FY 1981-82 even though the title may have settled in your favor in FY 2012-13 due to court decision.
Tax saving option:
a] On sale of non-agricultural land:
LTCG arising on sale of non-agricultural land can be saved by claiming an exemption
i] u/s 54EC by investing the amount of LTCG in the bonds issued by NHAI/REC Bonds or
ii] u/s 54F, subject to other terms & condition, by investing the amount of net sale consideration for purchase of another residential hose property.
b] On sale of urban agricultural land:
In addition to exemption option u/s 54EC & 54F as mentioned above, LTCG arising on sale of urban agricultural land can be saved u/s 54B by investing the amount of capital gain towards purchase of another agricultural land within the stipulated time frame.
Query 2]
I recently faced a problem while submitting my Income Tax details to my office. I am a state government employee. My family stays in a rented house located in Nagpur. My office/headquarter is located in Amravati. These are separate districts/ towns. When I tried to claim HRA exemption in my income tax by furnishing the rent slips belonging to my rented house in Nagpur, my office objected to this and told me I cannot claim HRA exemption for the rent I am paying for a house at Nagpur. I was told that as my headquarters is Amravati, I can claim HRA exemption only if the rented house is in the town / city of my office. Please let me know, is there any such restriction in claiming HRA exemption? Or I can claim HRA exemption irrespective of location of my rented house? [Amit Jagdale-jagdale_aa@rediffmail.com]
Opinion:
Exemption on House Rent Allowance (HRA) is available under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. HRA is given to meet the cost of a rented house taken by the employee for his stay.
Employees in receipt of House Rent Allowance (HRA) from the employer are eligible for exemption if employee is (a) occupying a rented accommodation & (b) paying the rent. These are the only two pre-condition for HRA exemption. It may so happen that an employee may not prefer to shift the family to the place of employment because of study, health, proximity in the location of employment & residence or other inconveniences. Considering the logic behind section 10(13A) & in absence of any specific restriction therein, in my opinion, you may be able to claim HRA exemption towards rent of Nagpur house property though you may be occupying it occasionally (weekends or otherwise).
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