• Purchase of agricultural land below guideline value

Bought agricultural land in rural area for 8 lac,  the guideline value 40 lac and paid duty of 40 lac, My CA is saying I have to pay tax on 32 lac as per IT rules.. But is it applicable even for rural agricultural land also because what I know sale purchase of agricultural land in rural area is tax exempt.

If at all it is taxable how can I support to say it's not a gain for me. 
Asked 6 years ago in Capital Gains Tax

Hi,

Your CA is correct. Since, you have bought the property below SDV. The difference will be treated as gift in your hands and you will be taxed on the differential amount.

However, if you have bought the land from your relatives, gift may be exempt.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

No your father's bua is not relative as per the definition of income tax act.

Hence, you have to pay tax on gift.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi

Your CA was correct. Difference amount un such transaction is taxable.

But, as per the relation mentioned by you, this would be covered under the definition of relative as per income tax act and the gift shall be exempt. Hence, no taxes.

Relation as understood by my: For your mother, the person gifting is sister of parent of her spouse.

For documentation, prepare a gift deed or notarized declarations stating such gift given and taken.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Please refer to the below definition of relative and see.. think from your mother's perspective.

In case of individual, relative means

Spouse of the individual

Brother or sister of the individual

Brother or sister of the spouse of the individual

Brother or sister of either of the parents of the individual

Any lineal ascendant or descendant of the individual

Any lineal ascendant or descendant of the spouse of the individual

Spouse of the person referred to in above points

So, if you mean sister of maternal grandfather (Nana), it is covered in definition; sister of paternal grandfather (dada) is not covered.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

If registration has been done for 8 lakhs, income tax has to be paid on 32 lakhs @ 30%.

I dont think registry value can be changed. Please consult a lawyer for this.l

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

The tax exemption you are talking about is in respect of capital gains. You have Other Sources income and not capital gains.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Capital gain on rural agricultural land is exempt but this is not capital gain. This is gift. Hence, you will have to pay tax.

Have you already entered into an agreement with the seller for this deal

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

This query is addressed specifically to other experts.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

Yes, you can make an addendum to the agreement which will change your sales consideration.

You should make payment through cheque for additional sales consideration. Provide details of that cheque in the addendum to the agreement.

This may help you in case any query comes from the department.

You can consider taking phone consultation for detailed discussion.

Please feel free to call/ revert in case you need more clarity.

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi,

Yes, your CA is correct; the amount of Rs. 32 lakhs will be taxable in the hands of your mother in her tax return for FY 2016-17. Tax is payable as per the slab rates. Hence, your net cash outflow will be less than Rs. 32 lakhs.

The provision (section 56(2)(vii)) applies to all immovable property, whether agricultural or not. Hence you cannot avoid it.

Your father's aunt will not be your mother's relative as per the Income-tax Act, 1961. It cannot be considered as gift so as to avoid tax.

You can avoid to pay your father's aunt Rs. 32 lakhs and amend the sale deed, because if you pay tax on Rs. 32 lakhs, when you sell the land, the cost of acquisition of the land will be considered as Rs. 40 lakhs and not Rs. 8 lakhs.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
27 Consultations

5.0 on 5.0

It appears that the query has been taken care of by my other colleagues, feel free to get back in case any part of it has been left unattended.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, FCA, LLB, CERT. FAFP

Rohit R Sharma
CA, Mumbai
2104 Answers
95 Consultations

5.0 on 5.0

I hope your query is addressed satisfactorily. If you need any additional clarifications, you may do so.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

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