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HindustanTimes Mon,14 Jul 2014

Wealth tax on farmland: Not new, but not understood

Hitender Rao, Hindustan Times  Chandigarh, April 29, 2013
First Published: 23:05 IST(29/4/2013) | Last Updated: 00:40 IST(30/4/2013)

Much hue and cry has been raised by political parties, particularly the non-Congress ones, in Punjab and Haryana over the "imposition" of wealth tax on agricultural land by the Congress-led UPA central government. But the cacophony seems to be the outcome of a barely understood subject, or maybe just a political bogey.

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The Finance Bill 2013 proposes a amendment within the Wealth Tax Act 1957 to tweak the definition of urban land. This amendment does not expressly bring farmland into tax purview; that was already done as per the older definition of urban land -- which was inserted in the Wealth Tax Act via the Finance Act of 1992. In fact, the central government had already notified 62 towns in Haryana and 44 in Punjab that constitute urban land.

So, it's not the first time that farmland falls in the wealth tax purview as per the 'urban land' definition. "However, it seems that the income tax department sat over it and never actually seriously imposed it," said a Haryana official.

DEFINING URBAN LAND SINCE '93
Here's the original definition of urban land for wealth tax, inserted with effect from April 1, 1993: Section 2 (ea) of Wealth Tax Act defines, urban land as that situated (i) in any area which is comprised within the jurisdiction of a municipality or a cantonment board, and which has a population of not less than 10,000 according to the last preceding census; or (ii) in any area within such distance not being more than 8km from the local limits of any municipality or cantonment board referred to in sub-clause (i); 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.

THE CHANGE PLANNED
Now, the proposed amendment, via Finance Bill 2013 introduced in the Lok Sabha in February, only seeks to tweak the definition:

Urban land means land situated (i) in any area which is comprised within the jurisdiction of a municipality or a cantonment board and which has a population of not less than 10,000, or (ii) in any area within the distance, measured aerially, not being more than 2km from the local limits of any municipality or cantonment board referred to in sub-clause (i) and which has a population of more than 10,000 but not exceeding 1 lakh; or not being more than 6km from the local limits of any municipality or cantonment board and which has a population of more than 1 lakh but not exceeding 10 lakh; or not being more than 8km from the local limits of any municipality and which has a population of more than 10 lakh.

So, it actually means urban limits for levying wealth tax will expand in sync with the population.

HOW TO TAKE OUT FARMS
Rohtak MP, Deepender Hooda who was a part of the delegation that met union finance minister P Chidambaram on Monday, said that the original clause 2 (ea) of Wealth Tax Act inserted from 1993 had loopholes that needed correction. "The assurance of finance minister that no wealth tax will be imposed on farmland has set the issue to rest," he claimed.

However, if Chidambaram is to keep his commitment, the proposed amendment redefining 'urban land' will anyway be dropped. But even that will not bring farmland out of the tax purview -- the original definition remains.

To pull farms out of the net, the finance minister will have to either bring in a fresh amendment to do away with some provisions in the Wealth Tax Act, or precisely work out the definition of agricultural and non-agricultural land in consultation with various political parties and farm leaders.

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