The Hindu Business Line : Mind your business when land is agrarian

I have purchased an agricultural land that is 8 km from Municipal Corporation limits. The land qualifies in all respects as an agricultural land. If I sell it within a month from the date of purchase, will the gains be taxable under the head capital gains? – Anish Vishnoi

If you are engaged in the business of purchase and sale of land, the factors of the land being agricultural land or within or without a Corporation will not affect taxability. If you have engaged in agriculture and your intent was to use the land for agricultural purposes, though you may have sold it within one month from the date of purchase, the gain will be exempt from tax and will not be chargeable as short-term capital gain.

The HUF of which I am the karta sold an agricultural land for Rs 35 lakh. This sale was in April 2008 and the capital gains accruing on the same was Rs 15 lakh. The entire consideration from sale of the agricultural land has been used by the HUF for construction of a property between December 2007 and December 2008. The HUF already owns two houses other than the one now constructed.

Can the HUF claim exemption? Is there a restriction on claiming exemption if more than one house is owned by the assessee? If so, what would be the recourse if an assessee already owning more than one house wants to claim exemption by reinvestment in another house? – Shiv Dev

No exemption can be claimed by the HUF on the reinvestment made in another residential house by way of construction.

An exemption is available u/s 54F provided the assessee is an individual or HUF; the gain from the transfer of a long-term capital asset is not a residential house; the assessee does not within 2 years purchase or 3 years construct any residential house other than the new house; the assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.

The quantum exempt will be the entire capital gain if the amount invested is more than or equal to the net consideration. If the amount invested is less than the net consideration, the exemption would be amount invested multiplied by capital gain and divided by net consideration.

As the HUF already owns more than one residential house other than the new asset, exemption cannot be claimed u/s 54F by the HUF. The HUF will not have the option of claiming the exemption by reinvestment in a residential house. In such cases, an assessee may consider claiming exemption u/s 54EC.

The exemption u/s 54EC is available if the asset transferred is a long-term capital asset; the investment is in bonds of the National Highway Authority of India or Rural Electrification Corporation and are redeemable after three years. If the exemption should be claimed under section 54EC, the investment should be made before six months from the date of transfer of the capital asset.

The exemption would be the whole of the capital gain if the amount invested is more than or equal to the capital gain. If the amount invested is less than the capital gain, the exemption would be to the extent invested

You may also note that the investment for the purpose of claim of exemption u/s 54EC cannot exceed Rs 50 lakh.

My son is a NRI and my daughter holds “The overseas citizen of India” certificate. They own an apartment in Bangalore in their joint names which was purchased in January 2006. They propose to sell the same and reinvest the proceeds in another apartment. What are the tax implications on account of the capital gains in respect of the sale, in their hands?

Considering their residential status, will they be exempted from the long-term capital gains when they reinvest in another apartment. It may be noted that they do not have any other residential property in India though they both own houses abroad jointly with their respective spouses. – Premnath K.

As the property is located in India the capital gain arising from its transfer will be chargeable to tax in India. You have, however, stated that your children propose to reinvest the proceeds in another residential house.

If this be so, they can claim exemption u/s 54 of the Act. Under section 54 an exemption is available on transfer of one residential house and on reinvestment in another residential house.

The exemption is available if the assessee is an individual or HUFs, if the gain arising from the transfer of a residential house is long-term capital asset, the income from such asset is chargeable to tax under the head income from house property.

The exemption would be the whole of the capital gain if the amount invested is more than or equal to the capital gain. The exemption would be to the extent invested if the amount invested is less than the capital gain.