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Can I purchase Agricultural Land in Karnataka?

What does agriculture include?

Agriculture includes aquaculture, horticulture, dairy farming, poultry, breeding of livestock, plantation, apart from growing crops.  Are BBMP Officials agriculturists, who cut trees in the city of Bangalore? No. cutting of trees or wood/timber is a business!

The land used for agriculture purposes is called as Agricultural Land.

Agricultural Land

Who can purchase Agricultural land in Karnataka?

For this, one has to check the Provisions under the Karnataka Land Reforms Act, 1961. Till recently, under this Act, several restrictions were there on purchase (or transfer) and holding of agricultural land.

The restrictions

  • Section 79A – If the aggregate income of all the members of a family or a joint family from sources other than agricultural land is more than Rs.25,00,000 per year, they are prohibited to purchase the land.

Latest Amendment through the Karnataka Land Reforms (Amendment) Ordinance 2020 – has deleted Section 79A. This means Income criteria are no more applicable. For example – even if one has Rs.50,00,000 income per year, he is eligible to purchase Agricultural Land.

  • Does this mean, an NRI who is in, say USA, can purchase Agricultural Land? No. As per FEMA Regulations, NRI/OCI/Foreigners are not allowed to buy agricultural / farmhouse property. Only Indian Residents can purchase agricultural land.

Oh, is it? I also want to buy the land. I have Rs.15 Lakhs, but 3 of my friends want to invest along with me. So, can we form a partnership firm or a private limited company and buy agricultural land?

Yes, it can be done. A firm or a company, (having NO FDI in the Company) can buy Agricultural Land and use it for agricultural purposes without seeking any prior-approval or permission from the Government. Can the entity purchase a sugar-cane property in Mandya? Purchase a Coffee Estate in Madikeri? Buy a Rubber plantation in Dakshina Kannada?  Or buy a dry land near Chitradurga?  Yes, everything is possible – no restrictions whatsoever.

I understand that there is a rule wherein only the Agriculturist / Farmer/ his family can buy an agricultural property?

Section 80 of the Act prohibits Non-Agriculturists to purchase the Land. But now, through this Ordinance, Section 80(b)(i) is deleted/omitted and therefore, non-agriculturists like a Ceramic Showroom owner in Bangalore, an Architect or a Doctor, without having any agriculture background by them/their family can purchase the Land in Karnataka.

This is fantastic! Some of us, a consortium of 10 people want to purchase 1000 acres of land for Organic Farming (the buzz word), Ayurvedic medicine plants (the new buzz word thanks to Covid). Can we do it?

No. There is a ceiling on the landholding. This can be answered in 2 parts.

Part A – Land Classification as the Act is as under-

A Class Property
  • Lands having facilities for assured irrigation from Government canals and Government Tanks as are capable of supplying water for growing two crops of paddy in a year
B Class Property
  • Lands having facilities for assured irrigation from such Government Canals and Government Tanks as are capable of supplying water for growing only one crop of paddy in a year
  •  Lands irrigated by such lift irrigation projects constructed and maintained by the State Government as are capable of supplying water for growing two crops of paddy [or one crop of sugarcane] in a year
C Class
  • Lands on which paddy crop can be raised or areca crop is grown with the help of rainwater;

Or

  • Land other than A and B Class
  • Lands irrigated by lifting water from a river or Government canal or Government tank where the pumping installation or other device for lifting water is provided and maintained by the landowner
D Class
  • Lands classified as dry but not having any irrigation facilities from a Government source.

 

Part B – Based on the Land Classification, the following type of entities/persons can buy a maximum of –

An Individual (having no family) 20 Units
A family comprised of five members 20 Units
Additional family member in excess of 5 members 4 units per person; but total holding per family should not exceed 40 units

 

For example, if Mr. Avinash as an Individual or Mr. Aravind, family of 5 or a firm of 10 people, weigh the options to invest in A, B, C or D class, here is the chart –

 Type A Class B Class C Class D Class
1 unit is equal to(the definition of unit is given in the Act) 1.3 Acres 2 Acres 3 Acres 5.4 Acres
Aravind 26 Acres 40 Acres 60 Acres 108 Acres
Aravind Family 26 40 60 108
A firm/Company of 10 partners/shareholders 52 Acres 80 Acres 120 Acres 216 Acres

 

They can choose any one of the options or a combination of the above, with a maximum ceiling as prescribed above. Hope this is not confusing!

All of us are used to square feet calculation, say, 20*30, 40*60, 50*80. What is this acre business?

It is important to know this

An Acre is equal to ·         43560 Square Feet (36 – 30*40 sites) Or·         40 Guntas (one Gunta is equal to 1089 Square feet)

 

Is this celling applicable for the purchase of Coffee Estate? I understand that Cafe Coffee Day owns over 10000 acres!

As per Section 103, the ceiling u/s 80 is not applicable for purchase or holding of plantation property like Coffee or Tea Estates. It is applicable only for wet/dry land.  Hence, one can buy even 10000 acres

It was a big pain to get the approval for conversion of Agricultural Land for Industrial purposes. Hope with this Ordinance, we can do it easily.

No. This Ordinance is about the purchase of the Land and uses for agricultural purposes only. If one has to use it for non-agricultural purposes, the Government approval route has to be followed, like the way it is happening now. Recently, the Government has done amendments to Section 109 of the Act, to allow industries to buy land directly from farmers, however with the permission of the revenue department. The concerned Deputy Commissioner should clear the application within 30 days and if the application is not rejected within 30 days, it is considered as deemed approval, the industries can go ahead to start the construction.

Tax on Agricultural Income

Income from Agriculture Such as the sale of paddy, pepper, coffee, etc., are considered as Agriculture Income and are exempt from Income Tax u/s 10(1)However, any income earned by trading in agricultural commodities is taxable as Business Income.
Sale of Agricultural Land There is no capital gain tax on the sale of agricultural land

 

The Ordinance has to be passed in the Karnataka Assembly to become the Law. Hope this will be enacted in the coming session.

Note: While reading the Act, I found this interesting term – HUSBAND. Do you know the meaning of ‘husband’?  Section 2(10) of the Karnataka Land Reforms Act reads as under –“to cultivate” with its grammatical variations and cognate expressions
means to
till or husband the land for the purpose of raising or improving
agricultural produce whether by manual labour or by means of cattle or
machinery, or to carry on any agricultural operation thereon”
The meaning of husband is “Use” or “cultivate” My friend says we can call it as ‘ABUSE’! maybe we can call it as ‘abuse of land by chemicals’

 

Is the liberalization in land acquisition rules a good initiative?

It is a Juicy Question. It is a TRP Question. The TV Channels have a copyright to answer such questions! They are better off to answer such subjective questions! I am neither knowledgeable nor competent to answer, let me leave this to the TV intelligentsia clans.

CA Prasad, 25th July 2020

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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]