When a company sells an industrial plot (land, and sometimes an attached building), the profit is normally taxed in the company’s hands under the head “Capital Gains”. The key drivers are: (1) long-term vs short-term classification, (2) deemed consideration under Section 50C, and (3) whether depreciation rules apply. This is general guidance; always verify with your sale documents and return records.
1) Long-term vs short-term (holding period)
For immovable property (land or building), it is generally long-term if held for more than 24 months; otherwise it is short-term. The Income Tax Department’s updated material continues to apply the 24-month test for land/building.
Practical tip: use the acquisition date from the purchase deed/allotment and the transfer date from the registered sale deed (or other legally recognised transfer date).
2) Basic computation (what is taxed)
Capital gain is broadly:
Full Value of Consideration (FVC) – transfer expenses – (cost of acquisition / improvement, as permitted) = capital gain.
For older transfers where indexation is available, the cost is replaced by indexed cost using the Cost Inflation Index (CII).
3) Section 50C: stamp duty value can override sale price
If the stamp valuation authority (SVA) value is higher than the stated sale consideration, Section 50C can deem the SVA value as the FVC for capital gains computation (subject to statutory mechanisms, including valuation reference).
A commonly applied safe-harbour summarised in professional guidance is that where stamp duty value does not exceed 110% of the actual consideration, the actual consideration can be taken as the FVC.
Because 50C can increase taxable gains significantly, always preserve (a) sale consideration proof, (b) stamp duty value, and (c) any valuation correspondence.
4) Tax rate & indexation: pre vs post 23 July 2024 (major amendment)
For transfers up to 22-07-2024, LTCG on property was typically taxed at 20% with indexation under Section 112 (plus applicable surcharge/cess).
For transfers on/after 23-07-2024, the Government stated that the rate for “other long-term capital gains” under Section 112 has been rationalised to 12.5% “without indexation”.
Therefore, the transfer date in the registered document usually determines whether you compute at 20% with indexation (old regime) or 12.5% without indexation (new regime).
5) Depreciation / “block of assets” issue (Section 50)
Land is not depreciable, so a pure land sale usually follows normal property capital gains rules. But if the sale includes a depreciable building that is part of a “block of assets” on which depreciation was claimed, Section 50 applies a special computation and treats the resulting gain as short-term for that depreciable asset transfer.
In mixed cases (land + building), companies often allocate values separately (supported by documents/valuation) so that land is taxed under normal rules and the building portion follows depreciation/block rules.
6) Company compliance (high level)
Report the transaction in the company return and keep a clean paper trail: purchase deed, improvement proofs, sale deed, transfer expense invoices, stamp value evidence.
Check advance tax/self-assessment tax and interest exposure where the gain is large.
Reconcile any TDS credit (if deducted) with Form 26AS/AIS and books.
Takeaway
For most companies, sale of an industrial plot held for more than 24 months results in LTCG taxable in the company. The biggest “swing factors” are (i) whether Section 50C deems a higher consideration, (ii) whether a depreciable building triggers Section 50, and (iii) whether the transfer falls before or after 23-07-2024 (indexation removed and a 12.5% rate introduced). Compute with documents before taking downstream steps like distributions or closure.
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