I want to sell my ancestral land that was acquired by my father before 1981 and was transferred to my name in 1992. I have converted the agricultural land to non-agricultural land in 2010.

The approximate value of land is ₹55 lakh. How will this transaction be taxed? Will I get indexation benefit?

Sandesh Brave

Any capital asset held for more than two years is categorised as long-term asset. For this purpose, the period of holding of the asset by the previous owner would also be included. Since the period of holding is well over two years, the land would be considered a long-term asset.

Any excess of sale consideration over the indexed cost of acquisition and expenses on transfer would be taxable as long-term capital gains.

For the purpose of determining the cost of acquisition of the land, the fair value as on April 1, 2001, would be adopted. The cost inflation index for financial year 2001-02 is 100 and for financial year 2017-18 is 272. The indexed cost of acquisition is calculated as : Fair value of the land as on April 1, 2001 x (272/100).

Capital gain exemption is available if the sale proceeds of the land are invested in the manner prescribed under Section 54EC or Section 54EE or Section 54F.

My daughter signed up for an insurance policy (Birla Sun Life Vision Plan) in 2011 for five years with an annual premium of ₹30,000. The sum assured is ₹1.23 lakh.

The company made a payout of ₹1.48 lakh during 2016 on maturity. She had to pay a tax of ₹44,400 being 30 per cent of the proceeds received, including premium paid by her over five years.

Therefore, an investment of ₹1.50 lakh over a period of five years has been ultimately reduced to ₹1 lakh. What are the rules related to taxation of receipts from insurance companies?

S Rama Rao

Maturity proceeds from life insurance policy are generally exempt. However, the entire proceeds and not just the gains would be taxable if the premium paid in any year exceeds 20 per cent of the capital sum assured.

Here, the annual premium of ₹30,000 exceeds 20 per cent (₹24,600) of the capital sum assured. Hence, the entire proceeds are taxable and the insurer is obligated to deduct tax at source on the entire proceeds. However, your daughter can file a return of income for the relevant year and excess TDS, if any, can be claimed as a refund.

The writer is Partner, Deloitte Haskins & Sells LLP. Send your queries to taxtalk@thehindu.co.in

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