Can I show sale of land as capital gains while running a construction business?

Income Tax Income from Capital Gains
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  1. PARTNERSHIP FIRM INCORPRATED ON 17/07/2019 (A+B+C) THREE PARTNER (ALL BILOGICAL BROTHER) PURPOSE MENTION IN PARTNERSHI DEED WAS REAL ESTATE AND RENTING (PURCHASE, SALE, AND LETTING OF LEASED BUILDING (RESIDENTIAL AND NON RESIDENTIAL) IN PARTNERSHIP FIRM.

  2. LAND WAS PURCHSED IN THE PARTNER SHIP FIRMED MENTIONING THREEE NAME OF THREE PARTNER IN PURCHASE DEED OF LAND

  3. RECONSTRUCTIONOF PARTNERSHIP ON MORE PARTNER ADEED PVT LTD COMPANY (A+B+C+D)D= PRIVATE LTD COMPANY ON 05/09/2019

  4. RE CONSTRUCTION OF PARTNERSHIP WAS CREATED ONE MORE PARTNER ADDED WIFE OF PARTNER (A) SAY PARTNER (E) NOW (A+B+C+D+E) ON 1/04/2022

  5. AGAIN RE CONSTRUCTION OF PARTNERSHIP DEED WAS MADE WERE PARTNER (B+C+D) RESIGNED B AND C GIFTED THERE CAPITAL BY MAKING GIFT DEED DULY NOTRISED TO( A) AND( D’S )CAPITAL TOOK IN UNSECURED LOAND IN THE BOOKS NOW PARTNER LEFT WERE (A+E)(50:50)ON DATED 1/10/2022

  6. ON 23/11/2023 NOTRISED RE CONSTRUCTION OF PARTNERSHIP DEED WAS REGISTERED IN OFFICE OF THE INSPECTION GENERAL OF REGISTRATION CUM REGISTRAR OF FIRM ODISHA- CUTTACK

  7. IN ITR IT IS SHOWN IN LONG TERM INVESTMENT (VALUE OF LAND)
    TWO QUESTION PLEASE CLERIFY:

  8. NOW IF I SELL LAND IN THE PARTNERSHIP FIRM THEN WILL I BE ELEGIBLE FOR LONG TERM CAPITAL GAIN?

  9. BEFOR SELLING LAND SHOULD I CHANGE PURPOSE OF DOOING BUSSINESS WHICH I HAVE MENTIONED IN MY PARTNER SHIP DEED (PURPOSE MENTION IN PARTNERSHI DEED WAS REAL ESTATE AND RENTING (PURCHASE, SALE, AND LETTING OF LEASED BUILDING (RESIDENTIAL AND NON RESIDENTIAL) IN PARTNERSHIP FIRM.) AND THE SAME PURPOSE IS ALSO MENTIONED IN INCOM TAX RETURN FILLING ALSO?

  10. In partnership it is mentioned WHEREAS the party to the first, second, third, fourth & fifth parts were carrying on their business of Real Estate, Purchase & Sale of Land for Commercial, Domestic & Agriculture Purpose, Construction of Land & Building, Farming of Fruits, vegetables, herbal plants, Seasonal Crops, Investment in Mutual Funds, Shares & Debentures of Companies listed/unlisted.

  11. PLEASE CONFIRM THE SAME THAT IF I SELL THE LAND NOW THEN WILL I BE ELIGIBLE FOR LONG TERM CAPITAL GAIN TAXED @12.5 % IN ITR FILLING I HAVE TAKEN IT IN LONG TERM INVESTMNET FROM THE DAY 1 YEAR 2020 FILLING

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Hello @Praveen_Agarwal

In my opinion, since the land was purchased by the partnership firm and recorded under Long Term Investment in the ITR filings (since 2020), it is likely to be treated as a capital asset rather than stock-in-trade and it will be taxable as LTCG.

Additionally, since the sale of land is already covered under your existing business objectives, you may not need to amend the purpose of the partnership deed.

However, if the Income tax department argues that the firm is in the business of trading real estate, then they may classify the sale as business income instead of capital gains. To strengthen your claim of LTCG for this sale of land, you should maintain records proving that the land was always held as an investment asset (not stock-in-trade) and that the firm does not carried out frequent land transactions.

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Continuing the discussion from Long term capital gain in selling of property:

DEAR SIR,

THANKS FOR REPLY

BUT IF I WILL CHANGE THE PURPOSE ND MAKE NEW PARTNERSHIP DEED IN BACK DATE SAY 1/04/2024 ANDFILE THE RETURN WITH PURPOSE CHANCE IN 24-25 ITR FILING, THEN I CAN BE SECURED AND ALSO IF I GET MONEY IN LTGC THEN I CAN RE INVEST IN OTHER PROPERTY AND SAVE THE TAX THAT I HAVE TO PAY PLEASE GUIDE.

4

Hello @Praveen_Agarwal

Backdating the partnership deed to 01/04/2024 and updating the business purpose may help strengthen your LTCG claim, but it carries legal and compliance risks if challenged.

The Income Tax Department applies the “substance over form” principle, meaning actual transactions matter more than deed wording. Since the land was recorded as an investment asset since 2020, proper documentation is key.

If LTCG is granted, you can reinvest under Section 54F (property) or 54EC (bonds) to save tax. Instead of backdating, consider prospective changes and maintain records proving the land was not stock-in-trade to avoid reclassification as business income.

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Continuing the discussion from Can I show sale of land as capital gains while running a construction business?:

THANK FOR YOUR PROMPT REPLY

I WANT TO TALK TO YOU SIR,IF POSSIBLE PLEASE CALL ME 9437046973

REGARDS

PRAVEN KUMAR AGARWAL

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Hello @Praveen_Agarwal

We do run our tax advisory for customers like you who can connect with tax experts online and we can help them.
You can book a slot using the below link to connect.

Plan Link

Thank you!

7

Yes, you can show the sale of land as capital gains while running a construction business, but it depends on how the land is classified. If held as an investment, it’s a capital asset and subject to capital gains tax. If used for business, it’s treated as business income. Consult a tax expert.