What should I do to reduce tax on sale of agriculture land?

Q. I have sold an agriculture land which was bought by me in 1989 .I have sold it in June 2007.Is it compulsory that further investment can only be made in agriculture land or I can opt for house ,any commercial shop or can this capital gain can be used for any other business , some friends have advised me for RBI relief bonds NHAI bonds for tax saving.

Ans. First check whether you have agricultural land which is not covered as a capital asset. Capital gains arise only on sale or transfer of capital asset. The definition of capital asset is given in section 2(14) of the I.T Act. It excludes "Agriculture land " provided the land is question fulfills certain conditions. A capital asset shall not include
Agricultural land in India, being land situated

1. In a municipality or cantonment area having population below 10 thousand or

2. Situated beyond 8 Kms from municipality or cantonment area not declared to be
Urban area.
So, if you find that your agricultural land is satisfying the aforesaid conditions , sale of such land is totally TAX FREE.

However, in case you do not fulfill the aforesaid conditions, the sale of such land shall result in long term capital gains on which you will have to pay tax. But there are exemption provided u/s section 54B ,54F and 54 EC which can be availed by you for reducing the tax or even exempting from payment of tax.


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