Capital Gain on Agricultural Land

Capital Gain, Capital Asset & Capital Gain on Agricultural Land

1. What is capital Gain?
2. What are the types of capital assets?
3. What is Capital Asset?
4. Which assets are not treated as Capital Asset under for calculating capital gain / loss?
5. What are the criteria of agricultural land which is not treated as capital asset while calculating capital gain?
6. Which capital gain is exempt u/s 10(37) of Income Tax Act?

1. What is capital Gain?

Capital Gain / Loss is the profit /loss realising from sale of any asset which is defined as capital asset under the Income Tax Act.

2. What are the types of capital assets?

Capital Assets are classified into 2 types: -

1. Short Term Capital Assets
2. Long Term Capital Assets

3. What is Capital Asset?

Capital Asset includes the following:

1. All kind of movable or immovable property held by an assessee, whether connected with his business or not,
2. Any securities held by FII invested under regulation of SEBI.

However few assets have been excluded from being the capital asset which has been separately covered in the question of exclusion from capital asset.

4. Which assets are not treated as Capital Asset under for calculating capital gain / loss?

Following assets have been excluded from definition of capital asset:

1. Any asset which he uses as stock in trade, raw material or consumable for the purpose of his business / profession.

For example gold for a jeweller, machinery for a machinery dealer is the stock in trade, hence will not be treated as stock in trade.

2.  Personal movable assets of a person like wearables, furniture & furnishings held for personal use of himself of his family.

But Jewellery, archaeological collections, drawings, paintings, sculptures or any other work of art are even if for personal consumption still would be treated as capital asset.

3. Agricultural land in India

4. Special Bearer Bonds,1991

5. Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.

6. Deposit Certificates issued under the Gold Monetisation Scheme,2015.

5. What are the criteria of agricultural land which is not treated as capital asset while calculating capital gain?

          Agricultural Land in India, not being a land situated:

• Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;
• Within range of following distance measured aerially from the local limits of any municipality or cantonment board:
  • • not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;
    • not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or
    • not being more than 8 KMs , if population of such area is more than 10 lakhs. Population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year.

6. Which capital gain is exempt u/s 10(37) of Income Tax Act?

Under Section 10(37) of Income Tax Act, we can claim exemption for capital gain arising from the transfer of agricultural land by compulsory acquisition and consideration is determined by Central Govt or RBI. This exemption is available only to Individual or HUF (Hindu Undivided Family). But To avail this exemption the transferred land should have been used by assessee (or his parents in case of Individual) for agricultural purpose for at least 2 years immediately prior to its transfer.