Chartered Accountant

1. I have a query regarding capital gain on agriculture land which is away from city, is in the village. Whether sale of such agriculture land is due for capital gain tax? [Sharad Wabgaonkar- sawabgaonkar@rediffmail.com]
2. I wish to sell our inherited agricultural but now urban land. Whether it is liable for taxation? If yes, please advise us the best way to reduce tax liability. We plan to invest in residential building. I already have our home in joint name with my husband. Is relief available if invested in 2nd or third residential building? [Jayanti singh- jayanti912@gmail.com]

1. To ascertain the taxability of profit arising on sale of agricultural land, one needs to ascertain whether it is a rural agricultural land or urban agricultural land. Entire surplus/profit would be tax free if (a) it is from sale of rural agricultural land & (b) it was used for agricultural purpose prior to its sale. The profit on sale of urban agricultural land or N.A. land would be taxable under the head “Capital Gain”.
2. An agricultural land is considered as rural agricultural land only 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.
3. The provision is same even on sale of agricultural land received by way of inheritance. Inheritance of a property in India doesn’t have any tax attachmentat the time of inheritance. However, its subsequent sale would be subject to normal taxing provision.
4. Tax saving option:
   a] On sale of urban agricultural land or non-agricultural land:
   LTCG arising on sale of urban agricultural land or non-agricultural land (NA Land) can be commonly saved by claiming an exemption
   i] u/s 54EC by investing the amount of LTCG in the bonds issued by NHAI/REC Bonds within a period of 6 months from the date of sale 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. [Mrs. Jayanti, in your case, tax saving u/s 54F would be available in respect of second house property. No exemption u/s 54F is available to the taxpayer towards investment in the third house property]

Opinion:

1. Share trading- Whether Business Income or Capital Gain Income:
   You have mentioned that you are trading in shares. Any person who is transacting in shares should understand that income from shares transactions could either be taxed under the head “Income from Business & Profession” or under the head “Income from Capital Gain”. Categorization would depend upon number of factors. The prominent factors that play an important role in determining whether it is a business income or capital gain income are: (a) Volume/Nature of transactions. (b) Intention/Logic behind investments. (c) Holding period of shares (d) Investment of own funds or a borrowed fund. (e) Other business activities of the assessee etc.
2. Taxability of Shares Transactions:
   Classification of income as business income vis a vis capital gain income is very relevant from the tax perspective, as under:
   a] If share trading is taxable as capital gain income, LTCG would be exempt and STCG would be taxable @ 15%, if the transaction of sale is covered by payment of securities transactions tax (STT).
   b] If share trading is taxable as business income then, irrespective of the period of holding, it would be taxed as per applicable tax slab of the individual taxpayer.
   c] Chapter VI-A deduction (which includes deduction u/s 80C towards LIC/PPF etc) is not available against capital gain income.
   d] Business expenditure like petrol, telephone expenses are admissible against business income. No such deduction is admissible while computing capital gain income.

Opinion: