I am 31 years and reside with wife and kids in Shivvamogga. My father owns agricultural land (rural area in Shivvamogga). My father plans to sell 2 acres of agricultural land which he had bought in 1975 for INR 2000. He will get INR 40 Lakhs for this land. Is it possible for my father to escape paying capital gains tax on his profit?
Make a note of this, Rural agricultural land in India is excluded from the purview of the term "capital asset". You have to first find out if this land is rural agricultural land or urban agricultural land. The land is rural agricultural land if it satisfies these conditions: 1. Agricultural land which is situated in an area within the jurisdiction of a municipality and which has a population less than ten thousand according to the last published census. 2. If situated outside the Municipality limits, it should be situated at a distance measured aerially (shortest aerial distance) - More than 2 Kms from the local municipality limits, if the population of the municipality is more than 10,000 but not more than a lakh. More than 6 Kms from the local municipality limits, if the population of the municipality is more than 1 Lakh but not more than a 10 Lakh. More than 10 Kms from the local municipality limits, if the population of the municipality is more than 10 Lakhs. Your father's land qualifies to be excluded from the definition 'capital asset' if it satisfies the above condition and then capital gains are not taxed. If your father's land does not satisfy these conditions it is a 'capital asset' and your father would have to pay long-term capital gains tax.