New Bill makes buying land easier in small towns
Mumbai- With the Finance Bill 2013 improving the distance and population criteria for determining agricultural land as a capital asset without levying any capital gains tax, land transactions around smaller towns are expected to increase.
This move has eased norms for realtors and corporates looking to buy plots around small towns and cities now. A town with a population of less than 10 lakh shall be referred to as small town.
Census 2011 provisional data revealed that, there are over 450 such cities including Noida, Greater Noida, Gurgaon, Mathura, Panvel, Mira-Bhayander, Bhiwandi, Siliguri, Guwahati and Jamnagar wherein population ranges between 1 lakh and 10 lakh.
As per the proposed correction, a plot situated 8 km outside the local municipality limits and if the town’s population exceeds 10lakhs, it shall be considered as farmland. For a town with population of 1 lakh to 10 lakh, the limit is set at 6 km, while for a locality with less than 1 lakh population, the limit is 2 km.
The existing provisions do not divide cities and towns based on population and provide uniform limit of 8 km for defining capital assets or non-agricultural land parcel. But based on the revised distance and population criteria, sellers can save nearly 20 percent of long term capital gains tax under exemption, if the transaction follows all other rules of Income Tax Act. The revision also clarifies that aerial distance has to be considered while measuring the distance.
The benefit is higher in tier II and III cities and towns. Land buyers and sellers around these towns will be allowed to claim exemption from long-term capital gains tax for their land parcels situated beyond 6 km.
However, builders will first have to obtain all licensing clearances required before starting actual development process on these plots. If the transaction is categorised in the nature of sale of land, then sellers can avail exemption for a land parcel beyond the specified limits even though the plots are not used to carry out agricultural activity.
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