No capital gains tax for farmers who pooled land for AP capital Amaravati

Providing relief to people who have given their land for setting up of Amaravati, new capital of Andhra Pradesh, Finance Minister Arun Jaitley today exempted them from capital gains tax on transfer of such land for development of the greenfield city.

"The new capital for state of Andhra Pradesh is being constructed by innovative land-pooling mechanism without use of the Land Acquisition Act. I propose to exempt from capital gain tax," Jaitley said while tabling the Union Budget for 2017-18 in the Lok Sabha.

The capital tax gains will be exempted on those who were the owners of such land as on June 2, 2014, the date on which the state of Andhra Pradesh was reorganised, and whose land is being pooled for creation of the capital city under the government scheme, he said.

A new clause (37A) in section 10 of the Andhra Pradesh Capital Region Act will be inserted to ensure capital gains arising from transfer of land are not charged.

The exemption will be applicable to transfer of capital assets, be it land or building or both, under the land pooling scheme.

The exemption will also be applicable to sale of Land Pooling Ownership Certificates (LPOCs) in lieu of land transferred under the scheme as well as sale of reconstituted plot or land within two years from the end of financial year in which the possession of such plot or land was handed over.

This amendment will take effect retrospectively from April 2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent period.

The government has also proposed to make amendment in section 49 of the Act to ensure the cost of acquisition of reconstituted plot or land after the expiry of two years will be stamp duty value on the last day of the second financial year.

"This amendment will take effect from April 1, 2018, and will accordingly apply in relation to the assessment year 2018-19 and subsequent years," the government said in its Budget 2017-18.

As per the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2014, the specified compensation received by the landowner in lieu of acquisition of land is exempt from income tax.

The land pooling scheme is an alternative arrangement made by the Andhra Pradesh government for formation of new capital city of Amaravati to avoid land acquisition disputes and lessen the financial burden associated with payment of compensation under the Act.

In the land pooling scheme, the compensation in the form of reconstituted plot or land is provided to landowners.

However, the existing provisions of the Act do not provide exemption from tax on transfer of land under the land pooling scheme as well as on transfer of LPOCs or reconstituted plot or land.