The Hindu Business Line : You have landed a fortune!

I have a piece of land that falls within the jurisdiction of a panchayat. I propose to sell this land. Will I have to pay capital gains tax on the gain from the sale of this land? Vimala Nayar

Agricultural land is not a capital asset if it is in India and is located

(a) in any area which is not comprised within the jurisdiction of a municipality (whether 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 10,000 or more according to the last preceding Census of which the relevant figures have been published before the first day of the previous year; or

(b) in any area in a distance of 8 km or more from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette

If in your case, the land is situated within the above referred area, no capital gains tax will be payable as it will not be a capital asset. On the other hand, capital gains tax will be payable if the land is located outside the above referred area.

In 1991 I purchased tenancy rights for Rs 2,00,000. There is no written agreement in this regard. I now propose to sell these rights for Rs 3,50,000. Will the sum of Rs 2,00,000 paid for purchase be treated as cost of acquisition? Will I get the benefit of indexation? I have purchased a house for Rs 5,00,000 out of the maturity proceeds of a life insurance policy. Will I get the benefit of exemption under Section 54F in respect of the capital gain arising from the transfer of the tenancy rights? Bhavesh Salva

Tenancy right is a capital asset and on its transfer capital gains would arise. If it is true that you have paid Rs 2,00,000 to acquire this right the same will be treated as cost of acquisition of the asset. You may note that the onus will be on you to show that you paid Rs 2,00,000 for the purchase of the right. This cost of acquisition will be eligible for the benefit of indexation. You will also be eligible for exemption under Section 54F in respect of the reinvestment in a house property provided you satisfy the conditions in the Section. The fact that you have used the maturity proceeds of a life insurance policy for the reinvestment should not hamper your claim for exemption under Section 54F.

I purchased 50 shares of Mercator Lines Ltd on December 23, 2005 at Rs 144 per share. I purchased 30 more shares in the company on Januray 27, 2006 at Rs 149 per share. The company declared a bonus and the record date was February 3, 2006. The bonus was given at three shares for every two shares held in the company. I sold my original holding of 80 shares at Rs 44.30 per share on February 22, 2006. How will my capital gain be computed? Ramachandran S

Since you have held the 80 shares for less than 12 months, the gain will be taken as short term capital gain. Since you have sold the original holding the cost of acquisition will be taken as the price paid to acquire these shares. This would mean that your cost of acquisition for the 80 shares would be Rs 11,670 [(50 x 144) + (30 x 149)]. The sale consideration would be Rs 3,544 [80 x 44.30]. The short term capital loss will therefore be Rs 8,126 [3,544 - 11,670]. You may note that the cost of acquisition of the bonus shares would be taken as nil.

I purchased a plot of land in March. I propose to construct a house and the construction is likely to be completed before March 2007. Will I be able to claim the exemption for the stamp duty charges for purchasing the land?

Venkatesh

Section 80C allows a deduction in computing the total income. Stamp duty, registration fee and other expenses paid for the purpose of transfer of house property to the assessee also qualify for the deduction. Transfer of house property will necessarily involve transfer of land as well.

Thus in a case where there is a purchase of a house, the deduction in respect of stamp duty on the purchase of the land and house should be eligible for the deduction. The situation should be no different even where a land is purchased and a house is constructed on the said land. The stamp duty on the land purchased by you should therefore qualify for deduction under Section 80C.

Reference in this connection may be made to Circular No. 667 dated October 18,1993 in the context of Section 54/54F where the Board had clarified that for computing the exemption under the Sections, the amount paid towards purchase of a plot and also towards construction of residential house thereon will qualify for the exemption. Section 54/54F provide for computing an exemption under the head capital gains on investment being made in a residential house.

You may note that Section 80C allows a deduction in the year in which the sum is expended.

Therefore, the deduction in your case can only be in the assessment year 2006-07 (financial year 2005-06) since you have registered the property in March 2006 and apparently the stamp duty should have been paid even then.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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