What Should I Do To Reduce Tax On Sale Of Agriculture Land?

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 REC bonds for tax saving .princetiwari@……………..com

Relax. First of all , check out if you have really agricultural land which is not defined as capital asset. Under I T Act , capital gains are chargeable to tax . However, capital gains arises 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 . The definition of capital asset is given below;

2(14) capital asset means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include

(i)……………

(ii)………………..

(iii) agricultural land in India, not being land situate

(a) in any area which is 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 not less than ten thousand 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 within such distance, not being more than eight kilometres, 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^“

^{What the aforesaid conditions says in plain words is that an agricultural land is not a capital asset under Income Tax Act , if agricultural land is}

1. ^{situated in a municipality or cantonment area having population below 10 thousand or}
2. ^{situated beyond 8 Kms from municipality or cantonment 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. For knowing more on section 54B read here . For section 54F click here and section 54EC read it here.}