Precautions in documentation of sale of agricultural land to avoid tax troubles?

Question

I am selling agricultural land in Haryana and reside in Delhi,the receipts i understand are tax free.I sek advice to ensure that proper documentation is done/proper process is followed to ensure income tax hassles now or later on.I want to show actual receipts,an all white transaction.The seller agrees to pay me through bank draft but wants to show lesser price at the time of registration of sale to pay lesser stamp duty.Pse advice

Answer 1

The agricultural land income is tax free as long as it is more than 8 kms away from the municipal limits. If the land is with the 8 kms range of a municipality limits, then you has no other go except paying capital gains.

Regarding showing under value:- Already all the properties are under valued with the Govt. Income Tax people accepts the Govt. registration value as your sale amount. If you show less than Govt. value, it is of no use. For the purpose of Income Tax calculation, the govt. registration value will be taken as your sale value if the sale consideration is less than Govt. value.

So, think over and do accordingly.

Example for Govt. reg. value.
You are selling the land for 1 lakh. You are registering it for Rs.25,000. The registration department accepts to register the same for Rs.25,000 but insist for payment of stamp duty for Rs.50,000 value. That means the govt. market value is Rs.50,000. For the purpose of Tax calculations, your sale price is Rs.50,000 and not Rs.25,000. OK.

Answer 2

You must know two things :

1.Not all agricultural land is TAX FREE . While sale of "rural agricultural land" is tax free ;"Urban" Agricultural Land is not tax free. So , you should know when is the agricultural land is " Urban" in nature. This is defined in Section 2(14)(iii) as follows :

"agricultural land in India, not being land situated-

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or

(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board ..."

So, if you see that your land is TRULY agricultural land , the sale proceeds is NON taxable.

You should collect all information to show that the land in question is agricultural and that its situated beyond the limit , as given above in definition . Attach the same along with deed of conveyance with the Return of Income and be in REST for ever. REMEMBER , transacting in cheques is great evidence of GENUINENESS of transaction. So you should do that .

2. The second point to remember , which is necessary only if the land in question is not RURAL Agricultural land . Then the question of capital gain comes into play .
The Value adopted by the Stamp Valuation Authority can be taken as sales consideration IF the same is MORE than the value of sales shown by you .This is on account of Section 50C of the I T Act which was introduced from FY 2002-03 .

In that case , you should take help provision given in the I T Act for saving taxes on capital gain ..This way even if it becomes taxable, you can still save on tax and shall be free of -so called hassles perceived by you. Section 54B provided scheme to save capital gains tax specifically on sale of agricultural land which is subject to capital gain tax. Further Section 54EC and 54F provides relief if you invest in bond or residential house as per the conditions set in the respective provisions of the I T Act.