For the purposes of capital gain, agricultural land located in specified zones is not considered to be capital property. If you plan to sell such land, there will be no capital gains tax impact on the sale. In other cases, depending on the holding period, there would be tax implications on the sale of agricultural land.
We have assumed that said agricultural land is not located in a specific area and therefore any gains, if any, resulting from the sale of the land will be taxable. You can confirm the specified area as referred to in Section 2 (1A) of the Income Tax Act, 1961.
In the event of inheritance, the period of possession of the house is counted from the date of acquisition of the land by the owner who actually acquired the said land other than by inheritance, donation, etc. As the land has been held for more than 36 months from the date of acquisition, it should be qualified as long-term fixed asset.
If the net proceeds from the sale exceed the acquisition cost, then the resulting gains will be taxable as long-term capital gains (LTCG) in your hands and those of your daughters in the respective proportion of the share.
The acquisition cost is the cost at which the previous owner, who actually acquired the house other than by inheritance, donation, etc., bought it.
In addition, since the land was acquired before April 1, 1981, you have the option of taking the actual acquisition cost or the fair market value (FMV) of the property on April 1, 1981. Thus, when calculating the LTCP , the acquisition cost is the price at which the original owner acquired the house or FMV on April 1, 1981, depending on your choice.
The acquisition cost should be indexed by multiplying the initial acquisition cost or FMV if applicable by the cost inflation index (CII) notified for the year of sale and dividing by the CII of the year the home was purchased by the original owner or during the 1981-82 fiscal year (FY) if FMV was taken into account. The cost of the improvement, if any, should also be indexed.
With respect to the portion (proportional to your share in the inherited land) of LTCG taxable in your hands, an exemption from LTCG tax can be claimed by reinvesting the net proceeds of the sale in a residential house located in India in accordance with in Section 54F, subject to specified conditions.
The aforementioned investment must be made within the specified time frame (i.e. within one year before the date of sale or two years from the date of sale or within three years for a property under construction).
One of the conditions specified categorically requires that by claiming the exemption from the LTCG, you should not own more than one house (other than the new house), on the date of sale of the old land.
For your part of LTCG, you can claim a waiver in the report of your share of the net sale proceeds resulting from the sale of the old land reinvested in a new house. When the cost of a new home exceeds the net pro rata sale proceeds from the sale of the old land, all of the LTCG should be exempt from tax. However, when the cost of a new home is less than the net proceeds of the pro rata sale, LTCG is exempt from tax on a pro rata basis of the cost of the new home over the net proceeds of the sale. As a result, the LTCG balance will be taxed at 20.6% (including tuition fees). In addition, if the total taxable income in the 2014-15 fiscal year exceeds 1 crore, a surcharge of 10% on the base rate (i.e. 20%) must be applied.
If you are unable to reinvest the net sale proceeds in a new home before filing the income tax return for the fiscal year of the sale of the home, the unused balance proceeds should be deposited into the CGAS (Capital Gains Account Scheme) before the due date. to complete the personal income tax return. The amount deposited in the CGAS must be used for the purchase of a new house within the aforementioned deadlines. If you are unable to use the amount deposited in CGAS within the aforementioned period, the unused amounts will be taxable as LTCG in the fiscal year in which three years from the sale of the old land have passed.
If your total income for the tax year reduced by said LTCG is less than the basic income exemption threshold for that year, then that LTCG will be reduced by the amount by which the total income so reduced is less than the exemption limit. basic income. The LTCG balance will be taxed at the flat rate of 20.6%.
Alternatively, you can invest LTCG in specified bonds issued by the National Highways Authority of India or Rural Electric Corp. Ltd under section 54EC. The investment must be made within six months from the date of sale of the old land subject to a threshold of 50 lakh and the fulfillment of specified conditions.
Please note that investing in a new home or specified bonds has a three-year lock-up period. Accordingly, if the new house is sold or the bonds are converted to cash within three years, the exemption claimed from the LTCG in respect of the old land will be revoked. If you take out a loan or an advance against the security of such obligations, they will be deemed to be converted into cash.
It would be advisable to consult a lawyer for the documentation.
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