What is the tax implication on sale of a plot that is purely agricultural in nature?

Deepak Samanta, Salt Lake

The tax liability will depend on the location of the agricultural land. Under the Income Tax Act, rural agricultural land is not a capital asset and, hence, the capital gains tax is not applicable on sales of such plots. But if it is an urban agricultural land, capital gains tax is applicable. But you can get tax exemption under Section 54B if the land was used for agricultural purposes during the two years immediately preceding its sale and also if you purchase another agricultural land within two years from its sale. It should be kept in mind that the new agricultural land cannot be sold within three years from its purchase. Otherwise, the tax exemption will be reverted back.

Proof of gift

If I give some amount to my close relatives as gift, shall I inform the income tax officer about this?

D. Mohanty, Rourkela

No, you don’t have to inform the tax officer about the gift. You can make a gift deed for record in case the tax department asks for a proof. You pay the money in bank cheque and get your relative accepting the gift sign a written document. While gifting movable property, the transfer may be effected either by a registered instrument signed by the donee, the donor and two witnesses or by delivery.

Relief on pension

Is the money received as commutation of pension taxable?

Suman Sarkar, Calcutta

Under Section 10(10A), the commuted value of pension is exempt from income tax. This is applicable for employees of central or state governments and local authorities. For pension received from any other employer under any other scheme with the employee also getting gratuity, the maximum exemption allowed is 33 per cent. If the employee is not getting gratuity, 50 per cent of the commuted value of pension will be exempt. Full amount of the commuted value of pension is exempt from tax if it is given by a fund set up by LIC under a pension plan.

If you have any queries about investing or taxes or a high-cost purchase you are planning, mail to: btgraph@abpmail.com, or write to: Business Telegraph, 6 Prafulla Sarkar Street, Calcutta 700 001.