The deadline to file an ITR is July 31, today. And, according to reports, the chances of extending the deadline are slim. When filing the ITR, several confusions arise. One of them is the profits from the sale of agricultural land.
Although agricultural land in rural areas of India is not considered as fixed assets and gains from its sale are not taxable as capital gains, certain conditions must be met to qualify for the exemption. .
When is the sale of agricultural land exempt?
In some cases, the sale of farmland may be fully exempt from income tax under Section 54B of the Income Tax Act or it may not be taxed as a capital gain.
If the farmland is in a rural area, it is not considered capital property and any gain from its sale is not subject to capital gains tax.
If it is urban farmland, then it will be taxed under Capital Gains.
However, under Section 10(37) of the Income Tax Act, capital gains on compensations received upon forced acquisition (government acquisition, etc.) of urban agricultural land are tax exempt.
The following conditions must be met under Section 54B to claim the capital gains exemption:
– Tax exemption is available for individual or Hindu united family (HUF).
– The land sold must have been used for agricultural purposes for a period of two years immediately prior to the date of sale.
– Another land for agricultural purposes must be purchased with the money received from the sale within 2 years from the date of the transfer.
– New farmland purchased to benefit from the capital gains exemption must not be sold within three years of its purchase.
– Therefore, if your farmland meets the definition of rural farmland and you qualify under the income tax laws, the land is not considered capital property for tax purposes. As it is not a capital asset for capital gains purposes, any profits made on the sale/transfer will also not be taxed under income tax laws, according to a report by the Currency.