The Finance Bill 2013 has proposed to increase the base for taxation for transfer of agricultural land as defined under the provisions of section 2(14)(iii) of the Income Tax Act. So far by virtue of the above provision, tax on transfer of agricultural land had been excluded from the ambit of capital gains tax except in the following two situations :-

1. Any agricultural land located in the jurisdiction of any municipality (it might be 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. In all such cases transfer of agricultural land will attract capital gains tax.

2. If the agricultural land is situated “in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (1), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.” then too capital gains tax would be applicable.

For that purpose, the Central Government had issued notification no SO – 9447 dated 06/01/1994. In that notification around 578 cities have been listed and corresponding relevant distances have been mentioned. Any transfer of agricultural land falling within the relevant distance of the cities mentioned in the notification would attract capital gains tax.

Finance Bill 2013 proposes to bring a change in the second proviso to section 2(14)(iii) by substituting the clause with the following provisions.

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Once the finance bill is passed the transfer of agricultural land will become taxable if the following conditions are fulfilled.

1. If the land is situated in any municipality, (known as municipality or municipal corporation, notified area committee, town area committee, town committee or any other name) cantonment board provided the said area does not have a population of less than ten thousand.

2. If the land is situated in any area which is located not more than two kilometers from the local limits of any municipality or cantonment board as referred to in item (1) and which has a population of more than ten thousand but not exceeding one lakh.

3. If the land is situated in any area which is located not more than six kilometers from the local limits of any municipality or cantonment board as referred to in item (1) and which has a population of more than one lakh but not exceeding ten lacs.

4. If the land is situated in any area which is located not more than eight kilometers from the local limits of any municipality or cantonment board as referred to in item (1) and which has a population of more than ten lacs.

Over here population means the population according to the last preceding census for which the figures have been published before the first day of the previous year. The details of population can be obtained from the website censusindia.gov.in which details the population of all cities and villages in India. The above provision will come into effect from the assessment year 2014-2015 which means that any transfer of agricultural land falling within the provisions above will attract capital gains tax from 1st April 2013.

Similar amendments are also proposed in clause (1A) of section 2 of the Income-tax Act, 1961 relating to the definition of “agricultural income” and in respect of the definition of “urban land” in the Wealth-tax Act, 1957. These amendments will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

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CA Sanbarta Koley

Bandel, Hooghly – 712123

mail : sanbarta@gmail.com

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