Hello Sir, I asked my another question couple of months back but somehow now its disappeared. I wanted to know more in details that if I dont incur any expenses on sale of agriculture land (like road, sewer, electricity, park etc.) in plots then what are my options. e.g. I purchased agriculture land in Rs. 40 Lacs in 2019 & total sum I received 1 Cr. in different small plots sale during 2024-25 & 2025-26 & I purchased another plot (or a house) in residential colony of 80 Lacs in 2025-26 then is there any tax liability on me in any of F.Y. where I sold plots? If yes then how much tax & in which year? Thanks

Ans: Since the plot+ house is sold in March 2021, it will be treated as Long Term Capital Gain as the period of holding of the property is over 2 years (24 months).

An exemption is not available if long-term capital gains (LTCG) from sale of residential property are re-invested in an agricultural land.

You can claim exemption on LTCG by reinvesting the capital gains in a new residential property (house, not just land) situated in India, within 1 year prior or 2 years after the sale date of the old property (if the house is acquired) or within 3 years (if house is constructed). You can also invest in 54EC bonds for a maximum amount of 50 lakhs subject to conditions.

In this case, since you have invested sale proceeds to agricultural land, the LTCG will be taxed at 20% with indexation.

Ans: Your tax liability depends on several factors, including the nature of the land, how it is being sold, and how you reinvest the proceeds. Let's break it down step by step.

1. Taxation on Sale of Agricultural Land
The tax treatment of your sale depends on whether your land qualifies as a rural agricultural land or urban agricultural land under the Income Tax Act.

Rural Agricultural Land: If the land is in a rural area (outside notified municipality limits or beyond a specified population threshold), it is not considered a "capital asset" under the Income Tax Act. No capital gains tax is applicable.
Urban Agricultural Land: If the land is within a municipality or close to it, it is considered a capital asset. Capital gains tax will apply.
Since you are developing the land and selling it in small plots, tax treatment will depend on whether the sale is considered a capital gain or business income.

2. Is the Sale Taxed as Capital Gains or Business Income?
Capital Gains Tax: If you are simply selling agricultural land as a capital asset, long-term capital gains (LTCG) apply if held for more than 2 years. Otherwise, short-term capital gains (STCG) apply.
Business Income Tax: Since you are incurring costs on development (roads, electricity, etc.) and selling it in smaller plots, the tax department may treat this as a business activity rather than a capital gain transaction. In that case:
Profit from sale will be taxed as business income at slab rates instead of LTCG.
Expenses on development (electricity, roads, etc.) can be deducted from your total income.
No LTCG tax benefits will apply since it is treated as business income.
If the tax department considers it capital gains, here’s how it will be taxed:

3. If Taxed Under Long-Term Capital Gains (LTCG)
LTCG Calculation:
Sale Price – Indexed Cost of Purchase – Indexed Cost of Development = LTCG
LTCG is taxed at 20% with indexation benefit.
Exemptions Available:
Section 54F: If you use full sale proceeds to buy a residential house, you can claim full exemption. However, buying a residential plot alone does not qualify for exemption unless you construct a house within 3 years.
Capital Gains Bonds (Section 54EC): You can invest up to Rs 50 lakhs in NHAI/REC bonds within 6 months to get exemption.
4. If Taxed Under Short-Term Capital Gains (STCG)
If the land is considered urban agricultural land and sold within 2 years, the gain is added to your income and taxed as per income tax slab rates.
No exemption under Section 54F or 54EC is available.
5. If Taxed as Business Income
Profits are taxed as per your income slab (which could go up to 30% plus cess).
Development costs like roads, electricity, etc., are deductible.
No LTCG exemptions apply (like 54F or 54EC).
6. What Happens if You Do Not Buy Any Property?
If considered LTCG, you will pay 20% tax with indexation on gains.
If considered business income, you will pay slab rate tax on profits.
If considered STCG, it is added to your total income and taxed at slab rates.
7. Your Case – Tax Planning Considerations
Since you are selling in plots and incurring development costs, there is a high chance that this will be treated as business income rather than LTCG.
Buying a residential plot alone does not qualify for LTCG exemption. You need to construct a house within 3 years for exemption.
If you want to reduce tax liability, consider investing in capital gain bonds (54EC) or a ready-to-move residential house (54F).
If the sale extends beyond FY 2024-25, capital gains will be split across years, allowing tax planning opportunities.
Final Thoughts
Confirm whether the land is rural or urban to determine if capital gains tax applies.
Understand how the tax department may classify your sale—as capital gains or business income.
If it's business income, reinvesting in a residential plot won’t give tax benefits.
If you want to save tax, either buy a house (not just a plot) or invest in capital gains bonds.
Let me know if you need more clarity on specific points.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Tax Implications on Rural Agricultural Land Sale
Rural agricultural land is not considered a capital asset in India.

Hence, any gains from the sale of such land are not subject to tax.

This exemption applies regardless of the profit made from the sale.

The gain from selling rural agricultural land is completely tax-free.

Sale of Agricultural Land in Your Case
You bought the land in 2019 for Rs. 17 lakhs, with a 50-50 partnership.

The land was sold in March 2025 for Rs. 20 lakhs, resulting in a gain of Rs. 3 lakhs.

Your share of the sale proceeds amounts to Rs. 10 lakhs.

As the land qualifies as rural agricultural land, the gain from the sale is exempt from tax.

Tax Calculation for Your Sale
Since the land is not a capital asset, the profit you made is not taxable.

You do not need to pay tax on the Rs. 1.5 lakh gain from your share of the sale proceeds.

There is no tax liability on the sale of rural agricultural land, regardless of the amount.

Reporting the Sale in Your Tax Return
Even though the gain is exempt, it’s advisable to report the sale in your tax return.

You should disclose the sale under the 'Exempt Income' section in your Income Tax Return for clarity and transparency.

This helps keep everything in order and avoids any potential issues with future tax filings.

Reinvesting the Sale Proceeds
The proceeds from the sale can be reinvested in mutual funds and equities to grow your wealth.

A diversified portfolio of investments can help balance risk and returns.

Consulting with a Certified Financial Planner will ensure that your investments align with your financial goals.

A well-structured investment plan can lead to wealth accumulation over time.

Final Insights
The gain from the sale of your rural agricultural land is tax-free.

You can freely invest the Rs. 10 lakh proceeds from the sale.

There is no need to pay tax on the Rs. 1.5 lakh gain.

Report the transaction under exempt income in your tax return.

Work with a Certified Financial Planner for expert advice on investing the proceeds.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment