Farmers’ Land in trouble
Charandeep Singh on the state of agricultural land deals in Punjab, and how these may tip the balance of an agrarian economy

Punjab has an agrarian economy, with agriculture being the most common means of earning livelihood. About 83.13 per cent of the total geographical area of Punjab is under cultivation. The total under-cultivation area in Punjab increased from 5678 thousand hectares to 7941 thousand hectares between 1970 and 2001. But as per the records, the percentage of this area decreased during 2004-2007.

The total under-cultivation area in the state decreased from 7932 thousand hectares to 7861 thousand hectares during this period. So what has led to this dip in a state whose economy is primarily based on its agricultural output. If the area under cultivation is shrinking, then it means that people are selling their agricultural lands, or the same land is being utilised for some other purpose. Why are the farmers selling their highly productive agricultural lands? Why has the prized commodity of Punjab — its agricultural land — become a highly tradable commodity? In the past few years, one has also seen the ownership of agricultural lands changing hands after every few years.

Main Triggers

n Over the years, the average size of land holdings in Punjab has shrunk, thus with small land holdings and the meager income generated from them, it is not possible for agriculturalists to survive solely on farming. These small land holdings were generally taken up by colonisers to develop colonies after dividing the land , first into plots, and then selling these. “My nine acre area was taken up by a local coloniser, and the land where earlier wheat and paddy used to grow, now has tall concrete structures”, says Jaspal of Baran village of Patiala.

n In order to increase the produce, there has been an excessive use of pesticides and fungicides over the past several years, and these artificial agents have reduced the productive capacity of soil, which in turn has affected the crop output. Thus with shrinking earnings, many farmers prefer selling their agricultural lands and shift to other professions.

n The problem of waterlogging is very acute in some parts of the state, especially in the ‘cotton belt’. Large tracts of cultivable land have been transformed into marshy areas, thus rendering these unfit for farming.

n With rapid urbanisation, the cities are expanding and the surrounding areas have come under the purview of the MC limits. As a result, the ‘rural property’ gets transformed into ‘urban property’, thus forcing people to sell their lands at a premium.

n Acquisition of land by the government for developing industrial projects, and also by big time builders for developing townships jacks up the prices and as a result many farmers find it a profitable choice to sell it. “When the government acquires land, it pushes the base rates of the property up and sets new benchmarks for the buying and selling of agricultural land at that particular price only. Moreover, when the land is acquired, the price offered is slightly higher than the prevailing market price most of the times. So it makes sense to sell the land to builders and various government agencies”, says Randeep Monga Mohali-based real estate consultant?

n Another factor which is contributing to the decay of agriculture in Punjab, thus forcing people to trade the agricultural lands, is NREGA. “Earlier , a Bihari labourer used to come to Punjab because over here the wages were five times of what he was able to generate for himself in his home state. But now with NREGA, his minimum wages have been taken care of. Thus Punjab is facing the problem of migrant labour. Without the helping hand of labour, the farmers cannot survive. This is the new fad which is forcing us to trade in our agricultural lands and shift to other greener options”, says Amrik Brar, a progressive farmer from Kapurthala.

High returns

Rapid urbanisation has made developers and builders make a beeline for agricultural land in the vicinity of major towns in the state. While lands close to the highways are ideal for ventures like highway malls, marriage palaces, restaurants, educational institutions etc, residential projects and urban estates have been planned in other areas. So all in all, the appetite for almost any sort of land is there. As a result of this huge demand, the prices have shot up tremendously over the past few years, and few agriculturalists are unaware of the goldmine they are sitting on at present. In the transactions of sale of agricultural lands, the stakes are high, and so are the monetary volumes. Kharar, which was not even a suburb of Chandigarh till few years back, practically has no land available for sale at this point of time. “For an odd chunk of land that may be there, the asking rate is around Rs 4 crore per acre”, says Randeep Monga. In Patiala large tracts of land were taken over by developers planning to develop townships around the city. The prevailing rate per acre of land in villages is around Rs 30 lakh.

DLF has purchased about 500 acres of land in Mullanpur, near Chandigarh. Rahul Mehta Executive Director DLF, “Initially, when we started acquiring land, the prices were too low, but today the market price over there is somewhere close to Rs I crore per acre. Moreover, the area got benefit because of our presence over there”. In 2006-2007 , the existing price per acre in Dera Bassi was around Rs 15 lakh, but ATS, which is developing a 300-acre township over there, purchased the land from farmers at Rs 18 lakh per acre, thus jacking the up the base price. “The last acre that we acquired in around July’2009 was for around Rs 2.5 crore”, says Hardish Sharma, General Manager, ATS Golf links.

Better deal

In spite of these factors, as far as deals in agricultural land in the state are concerned it is not as if these are all one-sided sale deeds only. Agriculturalists are always on the look out for farming land and are in fact making the most of the current market trends. Government acquisitions for SEZs, industrial projects and residential projects have made many farmers move out from areas close to towns and cities. But many of them have increased their land holdings by purchasing bigger tracts in areas where massive urbanisation is yet to take place. “I sold my 4.5 acres of land at Rajpura for around Rs 15 crore, and bought 30 acres in Sirhind for about Rs 10 crore”, says Gurjit Ahluwalia of Chandigarh. “My land was in the heart of city. Since agriculture was not yielding much so, it made sense to sell my land for a commercial enterprise, “ adds Gurjit, who sold his land to the Reliance group.

Many of the agriculturalists are less into doing farming themselves, and more into contract farming these days. So bigger the land holding, higher is the income. “I sold my land on GT Road at Rs 65 lakh per acre, and simultaneously purchased agricultural land in Guru Har Sahai at Rs 27 lakh per acre. With this transaction, first my land holding increased, and secondly, my income from contract farming also increased, as one acre fetches you Rs 35,,000 a year from contract farming”, says Inder Mohan Singh, a hotelier from Ferozepore.

Actually, the price of agricultural land is determined by various factors. “How far the land is from main road, size of the chunk of land, distance from the water source, and whether the land is in the interior of village or on the outskirts — all these factors play a major role in determinig the cost of the agricultural land,” says Jatinder Sandhu, a leading real estate developer from Bathinda. If the land is near a source of water, then the expenditure incurred on digging a borewell would be less as the ground water level would not be that deep. Thus the price of land would be high.

Future outlook

With the land sharks being there in the market all over and given the multiple options which the farmers have now, the sale and purchase of agricultural lands would continue unabated in future. The need of the hour is to put a regulatory check in place which prevents the land exchanging hands at these exorbitant prices. Though urbanisation is there to be blamed for being a spoilsport, we need to ensure that the quality of land is maintained for the generations to come.

African Bug

Another recent phenomenon — the ‘African Bug’ — has also had some effect on the sale of agricultural land in the state. Enterprising farmers are selling off their lands in the state and are shifting to African countries where large tracts of cultivable land are being provided to them for farming. “In March a seminar was organised in Patiala, where the Ambassador of four African countries were present, and they made a very forceful presentation to the people of Punjab to come to Africa and start agriculture over there with government support”, informs M.P. Singh OSD to Preneet Kaur, Minister Of State for External Affairs.

Tax tips
Tax on joint property
S.C. Vasudeva

Q. Could you please guide us as to how we can save tax on long-term capital gain resulting from the sale of a residential flat? The details are as under:

The flat where I and my wife are living is in our joint name. We had purchased another flat in our joint name in 1979 for Rs 5 lakh, and both of us invested equally for it. Now we want to sell this flat which will fetch us Rs 25 lakh. What will be the LTCG on it, and how can we save tax. If we purchase another flat jointly with our son, and all three of us contribute equally in it, including the entire amount of the long-term capital gain, then do we still have to pay tax on LTCG? Is it possible to save tax on LTCG this way or there is some other alternative? — Gulshan Lal

A. The facts in the query indicate that the residential flat was purchased in 1979. You have an option to adopt the fair market value of the residential house as on April 1, 1981 instead of the cost price of Rs 5 lakh for the purposes of computing the amount of capital gain. Since you have not indicated the fair market value as on April 1, 1981, the computations for the purpose of calculating capital gain have been made on the basis of the cost price of Rs 5 lakh. The benefit of cost inflation index will be available to you and on the said basis; the indexed cost would work out at Rs 35, 55,000. The sale price being Rs 25 lakh, no capital gains tax would be chargeable and instead the loss of Rs 9,45,000 would be allowed to be carried forward for adjustment against any long-term capital gain arising in the future years. Such carry forward is allowable for a period of eight years. I may add that the provisions of Section 50C of the Act require the substitution of the value adopted by the Registration Authority for charging stamp duty as against the consideration specified in the sale deed. In case such value is more than Rs 25 lakh the capital gain would be computed taking into account such deemed consideration.

The exemption in respect of capital gain is available in case a residential house is purchased by an assessee within one year before or two years of the date of sale of a residential house. The exemption would be allowable to the extent of capital gain utilised for the purchase of the new residential house. An assessee can also save the amount of capital gains tax by utilising the amount of capital gain in the acquisition of tax saving bonds. These bonds have to be purchased within six months of the date of sale. Such bonds have a lock-in period of three years.

Specify term of allotment

Q. Can the enhancement cost of a plot be more than 100 per cent of the cost at which it was allotted originally? Is there any Supreme Court ruling which states so? If yes, please quote that ruling. — Satpal Dhureja

A. The enhancement amount payable towards the cost of the plot depends on the term of allotment. In case the allotment or the agreement-to-sell provides for such enhancement, you would be liable to pay the additional cost. The case law in this regard would therefore depend on the terms of allotment of the plot which have not been indicated in the query. It is, therefore, not possible to give any citation on the subject.

Time it right

Q. I own a flat in Gurgaon which I intend selling in order to buy a bigger new flat. I have already zeroed in on a flat in Gurgaon. The possession would be given in 2012. The flat where I am living at present will be sold after the possession of the new flat is taken. I would be making payments towards the acquisition of the new flat, but the major portion of the payment would be made at the time of possession which would be possible after I sell my old flat. Will I be entitled to claim exemption in respect of capital gain from the sale of my old flat? — P.K. Jain

A. Section 54 of the Act provides for the exemption of capital gain arising on the sale of a residential house in case such capital gain is utilised for the purchase or construction of a residential house within the specified period. The specified period for the purchase of a house is one year before or two years after the date of sale and for construction it is three year after the date of sale. On the basis of the facts given in the query, you intend selling the old residential flat before taking possession of the new one. It would be advisable that the possession of the new residential house is taken within two years of the date of sale or one year before such sale. You may, therefore, plan and act accordingly.

Deduction of capital expenditure

Q. I am in the business of sale and purchase of real estate. I am interested in building and operating a new 3-star hotel under Section 35AD. Can I avail of deduction of capital expenditure incurred on this hotel against the taxable income from real estate business or for that matter from any other business.

If such deduction is not allowed, then, in which case, deduction of capital expenditure will be available? Is it against the profits of the new hotel business only, and which are not likely to be there in the first few years? — R.K Gupta

A. Your queries are replied hereunder:

The deduction under Section 35AD of the Income-tax Act 1961 (the Act), is allowable to an assessee in respect of expenditure of capital nature incurred wholly and exclusively for the purposes of any specified business carried on during the previous year in which such expenditure is incurred by him. On or after April 1, 2010, the applicability of the above provisions have been extended to a specified business which is in the nature of building and operating a new hotel of 2-star or above category as classified by the Central Government.

On the basis of the above provisions, in case you are carrying on the business of operating a hotel and build and operate another hotel which is of 2-star or above category, you will be entitled to a deduction of any capital expenditure incurred during the year, against the income computed under the head ‘profits and gains’ from such business.

In case profits for the year are not sufficient, the deduction so allowed would enable you to carry forward the loss inclusive of such deduction for adjustment against future profit(s). 

Exemption on HRA

Q. I am working as a post graduate teacher in a reputed school in Delhi and getting HRA for which I am availing exemption in accordance with the provisions of the Act. I intend buying a house in Gurgaon. It will be partly financed by a loan from bank. Can I claim the benefit of deduction of interest on loan as well as the amount of HRA received by me as I would not be shifting to Gurgaon and the Gurgaon house would be let out? — Shalini

A. The exemption in respect of HRA can be claimed in case an employee has actually made the payment of rent and that the employee is not living in his own house. The facts in the query indicate that you would be fulfilling both these requirements and accordingly you would be eligible to claim exemption in respect of house rent allowance. You would also be entitled to claim deduction in respect of the entire amount of interest paid on housing loan under Section 24 of the Act since you intend letting out the house. It may be noted that the deduction in respect of amount of interest paid/payable on housing loan and exemption under Section 10(13A) of the Act in respect of the house rent allowance are independent of each other. 

This column appears weekly. The writer can be contacted at sc@scvasudeva.com

Green House
Revel in Fragrance
Satish Narula

When we talk about ‘greening’ the large tracts, we are considering large stretches in housing societies, green belts, open spaces, important public premises, theme gardens, clubs and marriage places etc. Theme gardens are not always developed by government agencies. We can also create such gardens near our place of residence, but in such cases either the community or the owners of large properties who allocate spaces for different facilities have to decide about the final plan.

Several developers are now using specialised landscape designs as the USP of a residential projects. Today we give information on one such type of garden — the garden of fragrance.

Those in the real estate business need not worry as there is no extra cost involved. Actually, one can cash in on such a concept. The planning, however, has to be judicious as the only thing that matters is the proper placement of plants. Before I talk about such plantings, let me make it clear that there is no danger of reptiles ‘setting up home’ near such plants. Many are scared to plant plants like raat-ki-rani as snakes are believed to appear near this plant. But this is completely unfounded as any place that has obstructions or good hiding will have these 
reptiles.

Nature has provided different categories of plants with fragrance emanating from different parts of the plants. Mostly, it is the flowers that spread fragnance. The fragrance is emitted when the flowers open and as the flowers in raat-ki-rani open at night, it gives fragrance at that time. This shrub, however, should be planted at the four corners of the project. It can also be planted in small groups along the strolling path at distances not less than 200 feet between groups. Among other fragrant bushes are gardenia, francisia (yesterday, today and tomorrow), murraya, mehndi, nictanthes (haar shingar), motia and some varieties of roses. Out of these, mehndi is not very good to look at, and thus should be kept in the background. What we need is the fragrance. Even its leaves could be used by those living in the colony.

What should be very close to the residences are the climbers. These could be trained on the premises or on specially made pergolas at the entrance to the community or home gardens. Climbers have the advantage to take the shape of the object on which these are trained thus highlighting the actual architectural lines. Some of the very fragrant climbers are jhumka bel, Lonicera japonica, jasmine of different types (white or yellow) etc.

What is most important for vast areas are the trees that need special care for selection of site as these are the permanent features that could not be shifted at any later stage.

These could be planted in groups, individually or as avenue trees depending upon the space available vertically as well as horizontally. Some of the fragrant trees to choose from are alstonia, champa, magnolia, Sita Ashok and plumeria also called firangipani.

This column appears fortnightly. The author is the Senior PAU Horticulturist at Chandigarh and can be contacted at satishnarula@pau.edu

Fortnightly alert

This the time when the citrus species plants are sprayed with zinc sulphate to combat the zinc deficiency. Normally, the mistake is made when we mix Bordeux Mixture or Blitox with it to save the plants from fungal infections. Don’t ever mix the two. Keep a gap of at least seven days between the spray of the two chemicals.