| Question And Answer | |
|---|---|
| Subject: | Rural agricultural land converted into residential land & then sold as residential land |
| Category: | Income-Tax |
| Querist: | Jubin Sharma |
| Answered by: | Law Intern |
| Tags: | Capital Gains, Long term or short term, period of holding, Rural agricultural land |
| Date: | March 19, 2025 |
An assessee bought a rural agricultural land in 2011-12 as it is a rural agricultural land it does not classify as a capital asset, As on today’s date i.e. 19/03/2025 rural agricultural land only. Suppose he converts the land to a residential land on 01/04/2025 (It will classify as a capital asset) and sell the whole set of Residential land in 2025-26 only.
Query: What would be the period of holding, would it classify as LTCG or STCG? (As the assessee is not in the business of Real Estate or developing or selling of land and not having any more of such projects we won’t be taking this income in the head PGBP)
Courts have held that for assets that were not capital assets at the time of acquisition (e.g., rural agricultural land), the period of holding for capital gains purposes begins from the date they become capital assets (e.g., upon conversion). Examples include CIT v. Rama Rani Kalia (2013) 358 ITR 499 and CBDT Circular No. 4/2007.
Consequently, the period of holding begins on 01/04/2025 (date of conversion to residential land) and ends on the date of sale in FY 2025-26. The holding period is 12 months (if sold on 31/03/2026).
The land will be a Short-Term Capital Asset, and the gain from its sale in FY 2025-26 will be taxed as Short-Term Capital Gain (STCG) under Section 45
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