capital gains tax: documents necessary to prove that the parcel sold is agricultural land to avoid capital gains tax
I bought agricultural land near Mohali in 1995 for around Rs 20 lakh. The plot is currently worth over Rs 2.5 crore. I understand that subject to certain location conditions, farmland is not considered capital property for capital gains purposes. Please indicate the applicability of capital gains tax and, if exempt, the necessary documents to be presented to the valuation officer.
Amit Maheshwari, Partner, AKM Global responds: To prove that the land is agricultural, the taxpayer must obtain the records from the relevant land revenue office for land classification and the relevant municipal records for other information such as population, area of municipality, etc. If the land is not considered agricultural land, the related capital gains are taxable. The fair market value of the land on April 1, 2001 will be considered as the cost which will be indexed to the year of sale to take inflation into account and the gains obtained after deducting this cost from the consideration for the sale will be taxed at 20 % plus surcharge and cess applicable.
My request is related to my investments in shares with a holding period of six months to 20 years. I plan to give everything to my 20 year old son. In the event of liquidation of investments, will capital gains be taxable in its hands? Will the period of ownership of the shares applicable to me also apply to him?
Amit Maheshwari, Partner, AKM Global, responds: Section 56 (2) (x) of the Income Tax Act, 1961 provides that any gift received from a relative is not taxable in the hands of the taxpayer, regardless of the amount. Therefore, the gift you give to your son will not be taxed in his hands, nor will there be any revenue hogging in your hands. On the subsequent sale of a fixed asset, the capital gains are taxable in the hands of the seller on the basis of the holding period. The acquisition cost and the acquisition date of the asset will be the cost and the date of the previous owner, respectively. Thus, the capital gains resulting from the transfer of such an investment would be taxable in the hands of your son, and the period of ownership of the shares would be calculated from the date of acquisition by you.