No capital gain on farms
QMy mother and me inherited some agricultural land and some shares after the death of my father. We are planning to sell a part of the land and some shares. Will such sale be taxable? RAGHURAM KULKARNI Via mail
A) Agricultural land in India is not a capital asset, if it does not come under the jurisdiction of an urban civic body or a cantonment board or if it does not situated:
within two km from an urban civic body with a population of 1 lakh;
within six km from an urban civic body with a population of 1- 10 lakh;
within eight km from an urban civic body with a population of over 10 lakh;
If your land does not come under any of these limits, it will not be chargeable to tax.
Your query does not indicate whether the agricultural land will be classified as a capital asset under Section 2( 14). If it was outside the meaning of the term “capital asset”, there will be no liability to tax on its sale. If it is within the meaning of the term capital asset, it would be chargeable to tax at 20 per cent ( plus education cess), if the asset proposed to be sold is held for more than 24 months ( from AY2018- 19). The tax liability will be calculated after taking the benefit of indexation by applying the cost inflation index.
With regard to the selling of shares of a company, if the shares are sold through a recognised stock exchange in India and have been held for more than 12 months ( including the period of holding by the previous owner as per Section 2( 42A)), it will be taxed in accordance with Section 112A of the Income- Tax Act, from financial year 2018- 19 onwards. As your income other than LTCG mentioned above is also taxable, the liability of tax on LTCG calculated above will be the amount of income- tax calculated on such long- term capital gains in excess of ` 1 lakh at the rate of 10 per cent ( plus education cess).
The cost of acquisition for the purposes of computing capital gains in respect of the long- term capital asset acquired by the assessee before February 1, 2018, will be deemed to be the higher of the actual cost of acquisition of such asset; and the lower of the highest price of the capital asset quoted on such exchange on January 31, 2018; and the full value of consideration received or accruing as a result of the transfer of the capital asset.
( The writer is a Hyderabad- based CA. He can be reached at info@ rathiandmalani. com)