How To Save Tax On Selling Agricultural Land In India?
Given that agriculture is the foundation of our country’s economy, the Indian constitution has a number of clauses that reduce taxes on the sale of agricultural land. The Income Tax Act of 1961 generally exempts agricultural land & its sale from taxation. Thus, continue reading to learn about the tax advantages you will soon experience if you intend to purchase or sell agricultural land in India in the near future.
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Most cases in India do not classify agricultural land as a capital asset. As a result, any gain from its sale is not subject to capital gains tax. In actuality, there are several ways to reduce taxes on the sale of agricultural land under the Income Tax Act of 1961. Therefore, agricultural lands guarantee several ways to maximise your investment. Having said that, read on for a detailed understanding of the income tax act’s tax provisions.
An overview of ways to reduce taxes on the sale of agricultural property in India
The Income Tax Act of 1961 states that income from agriculture is not taxed. For the revenue to be categorized as agricultural income, a few requirements must be fulfilled. Any type of agricultural activity, including the raising of livestock or crops, should be carried out on the land. The land itself ought to provide the revenue from these operations.
It is noteworthy that there is no tax on proceeds received from the selling of agricultural products. Sales proceeds from crops, fruits, vegetables, and other agricultural products are included in this. Moreover, there is no tax on any money received from renting out agricultural land. On the other hand, the land will be taxable if it is utilised for non-agricultural uses, including establishing a business or a residence.
Save tax on the sale of agricultural land: capital gains exemptions
It is critical to comprehend the possible capital gain exemptions when selling agricultural land in India. You can reduce your taxable income significantly with the use of these exemptions.
Section 54B
You can claim an exemption on the capital gains under Section 54B of the Income Tax Act. If you sell agricultural land and use the proceeds to buy another agricultural property within two years. Both individuals & Hindu Undivided Families (HUFs) are eligible for this exemption.
Section 10(37)
The Income Tax Act’s Section 10(37) exempts capital gains that result from the forced purchase of agricultural land. If the land was utilised for agriculture for at least two years prior to the acquisition, this exemption may be applicable.
Save taxes while selling agricultural land: Requirements met
The Income Tax Act’s Section 54B exempts sales of agricultural land from capital gains tax. The following requirements must be satisfied in order to claim this exemption:
- Only individuals or Hindu Undivided Families (HUFs) are eligible for the exemption.
- The taxpayer or their parents must have used the land for agricultural purposes for at least two years prior to the sale in order for it to be eligible for sale.
- Within two years of the selling date, the taxpayer is required to buy another piece of agricultural land.
The new agricultural land must be located in India
The amount of capital gain must be deposited before the tax filing date if you are unable to purchase agricultural land before the deadline for filing tax returns. It must be deposited in any public sector bank branch.
If the cost of the newly acquired farmland is more than the entire capital profits, the capital gains are totally exempt. The cost of the agricultural land less the capital gains will be subject to tax. If the price of the recently purchased agricultural plot is less than the total amount of capital gains.
Reducing taxes on agricultural land sales by declaring sales of such land in tax returns
Any proceeds from the sale of agricultural land must be declared in the tax return according to the Income Tax Act of India. It is not necessary to report the gains from the sale or transfer of agricultural land in order to compute the income tax return. All things considered, agricultural income is exempt and is only declared on tax returns in order to calculate the average tax rate. Since the agricultural land is not a capital asset. Profits from its sale are exempt from disclosure requirements in tax filings.
Relevant information, including the date of sale, the sale price, and the acquisition cost. Must be included when reporting the sale of agricultural land on an income tax return. The difference between the sale price and the acquisition cost is used to compute the capital gains tax.
Conclusion
Seeking advice from a tax expert or chartered accountant is recommended in order to guarantee precise disclosure and capital gains tax computation. If agricultural land is sold without disclosure, there may be fines and legal repercussions. People can make sure they are in conformity with the Income Tax Act and stay out of trouble with the law. By carefully reading the rules and including the sale of agricultural land in their income tax return.
For information on the precise exemptions that apply to your circumstances. Speak with a tax counsellor or a real estate specialist. Utilising the relevant exemptions will help you decrease your tax obligations and increase the proceeds from the sale of agricultural land.
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