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As per Section 45(1), Capital Gain include any profits or gains arising from the transfer of a capital assets during the previous year. Definition of capital assets given in Section 2(14) of the Income tax Act, 1961.

Section 2(14) “Capital Asset” means-

(a) Property of any kind held by an assesse, whether or not connected with his business or profession;

(b) Any securities held by a Foreign Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(c) Any unit linked insurance policy to which exemption under clause 10(D) of section 10 does not apply on account of the applicability of the forth and fifth provisions thereof,]

But does not include-

(i) any stock in trade…..

(ii) personal effects, that is to say, movable property( including wearing apparel and furniture) held for personal use by the assesse or any member of his family dependent on him, but excludes-

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

For the purpose of this sub-clause; “jewellery” includes-

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn in to any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture , utensil or other article or worked or sewn in to any wearing apparels.]

(iii) agricultural land in India , not being land situate-

(a) in any area which is comprised within the jurisdiction of a municipality or a cantonment  board and which has a population of not less than ten thousand or

[(b) in any area within the distance, measured aerially,-

(i) not being more than two kilometers, from the local limits of any municipality or cantonment board, and which has a population of more than ten thousand but not exceeding one lakh; or

(ii) not being more than six kilometers, from the local limits of any municipality or cantonment board, and which has a population of more than one lakh but not exceeding ten lakh; or

(iii) not being more than eight kilometers, from the local limits of any municipality or cantonment board, and which has a population of more than ten  lakh.

(iv) 6.5 per cent Gold Bonds, 1991, 7 per cent Gold Bonds, 1980, or National Defense Gold Bonds  issued by Central Government;

(v) Special Bearer Bonds, 1991, issued by Central Government;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme,  1999 (or deposit certificates issued under the Gold Monetization Scheme 2015) notified by the Central Government.

From the above definition it is cleared that capital gain on transfer of agriculture land will be exempt subject to certain conditions as mention section 2(14)(iii) of the Income Tax 1961.

From Assessment Year 2014-15 following Population and Aerial Measurement from the local limits of any municipality (whether know as a municipality, municipal corporation, notified area committee, town area committee or by any other name) or a cantonment Board) are as under:


Aerial Measurement form Municipal Corporation
10,000 to 1,00,000 within 2 kilometers
More than 1,00,000 to 10,00,000 within 6 kilometers
More than 10,00,000 within 8 kilometers

From the above chart, it is clear that any agriculture land situated in a small village, having population of 10,000 or less is totally exempt under Income Tax Act, 1961.

Before Asst. Yr. 2014-15, there were dispute about the limit of Municipal Corporation or any Cantonment Area. Bombay High Court have decided in the case of Smt. Maltibai R Kadu and others dated 30.03.2015 that distance of Agriculture land be measure by horizontal plane or as per crow’s flight and not on straight line distance.

Thereafter CBDT has issued circular no 17/2015 dated 06/10/2015 that no dispute is to be raised by the department in appeals up to Asst. Yr. 2013-14.

Taxability  of Capital Gain on Compulsory Acquired agriculture land of City Area:

Section 2(14) of the Income Tax Act, clearly says that agriculture land situate at Village is considered as exempt. Hence any land acquired under Compulsory Acquisition Law no liability u/s 45 of the Income Tax Act arise. Of Course till Asst. Yr. 2004-05 exemption was not available.

From Assessment Year 2005-06, u/s 10(37), any Individual or Hindu Undivided Family owned an Agriculture Land and used the land for agriculture purpose before two year, was exempt if it has been acquired and received Compensation or enhanced compensation or consideration  Capital Gain was exempt.

Exemption u/s 54B:

Capital gain arises on transfer of Agriculture Land, invested in purchase of new agriculture land will exempt if following conditions are fulfilled.

(1) Land which has been sold must be used by assesse, his/her parents for minimum two years of the transfer.

(2) The Capital Gain arises on transfer of Agriculture Land will be invested within two years of the transfer in purchase of new agriculture land.

(3) If the new land purchase, will sale within three years of the purchase, benefit of exemption will take and is liable to pay tax by considering gain as short term capital gain.

(4) The amount of Capital Gain is to be deposited in bank, Capital Gain Account Scheme till new land purchase.

If all the above conditions are full fill assesse is entitled to get benefit u/s 54B.

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April 2024