Ways to Save Tax on Capital Gains on Sale of Agricultural Land Within Municipal Limit?

My mother has a agriculture land within municipal limit of the city and about to sell it for 6cr. The agriculture land came to her via a will which was done by my grandmother in 1979. After grandmother died the land was transferred to my mothers name in 1999. She has been the owner for the agricultural land since then. After selling she want to invest some money in the gov. fund i.e 50Lac( max the gov allows) and also buy the following:
1) Agricultural land outside the city limits
2) Buy Residential flat or bungalow.
Will she need to pay any CGT ? Can she make use of any exemption under the CGT.
Any advice on how to save CGT would be much appreciated.

Akash Menon ,Pune

First of all since the agricultural land is situated within municipal limit, it is capital asset and therefore , capital gains is any shall be taxable.Here are the ways to save tax ?

1. Index Cost as on 1/4/1981

First way is properly estimate the market value of the land as on 1/4/1981 because the land was belonging to your maternal grandmother and it passed on to your mother on her death was held by grandmother before that date. So , the market value as as on 1/4/1981 can be taken for indexation purpose.

Recently the Special Bench of ITAT Mumbai cleared a confusion in case of DCIT vs Manjula Shah 318 ITR 417 ( Download it from here ) whether indexation in case of assets which are transferred by way of gift can be taken from the date the donor had held the asset or from the date from  which it was passed on to donee who actually sold the asset. As per the Tribunal, the date from which the Donor held , has to be taken for the purpose of indexation.

Section 47 holds certain mode of transfer of asset not transfer for purpose of capital gains. Transfer of assets by way of will, gift or inheritance are some them . In your mother case , the asset was actually held by grand mother from 1979 and was transferred on her death to your mother as inheritance , therefore , the date of acquisition for the purpose of computation of capital gains in your mother case shall be 1979. And for that reason, she can substitute the cost of the land as on 1/4/1981.

So , consult a registered valuer and get a report regarding market value of the agriculture land as on 1/4/1981 and then do the indexation of cost.

If you don,t find any, visit the Aayakar Bhavan in your city and meet PRO and ask for list of valuer who are registered with income tax department.

2. Claim exemption u/s 54 F & 54EC

Section 54F provides that if the sales consideration is used for buying a residential house , then amount spent on new residential house shall be tax free. Read more about section 54F here.

Similarly, upto Rs 50 Lakhs you can invest in specified bonds of NHAI or REC or any other which may be notified by Govt for this purpose.

3. Claim exemption u/s 54B

Section 54B provides that if one or his or her parents used the land for agriculture purpose , two years before the transfer of the agriculture land which is subject matter of capital gains , then if he or she purchases another agricultural land within two years from the date of transfer of land , then amount equivalent to investment in agricultural land shall be exempt.Read the provision u/s 54B here

Therefore, first thing to check if the land which your mother has , was actually utilised for agricultural purpose for two years before sale.If condition is satisfied, claim the exemption u/s 54B if you purchase agricultural land