My father got Rs 1 crore after Govt acquired our land. Will I have to pay tax if he buys a flat in my name?

financialexpress.com:

Rupesh Goel’s father received approximately Rs 1 crore after the acquisition of his inherited farmland by the Government. In an email sent to FE Money recently, Rupesh shared that his father wants to buy a flat in his name with the money received from the Government. All the transactions for the purchase of the property will happen from his father’s bank account. Rupesh asked whether he would have to face any taxation on the purchase of the flat. Also, is there any way in which he can avoid such a tax?

Shruti K.P, Partner, IndusLaw has answered Rupesh’s queries:

As per Section 2(47) compulsory acquisition is treated as a transfer and accordingly, capital gains are computed as per the provisions of Section 45(5) wherein the compensation received is treated as the sale consideration.

In the instant case, since the farmland is compulsorily acquired, note that as per Section 2(14) specified agricultural land (rural agricultural land) is outside the purview of the definition of capital asset and hence, if the farmland qualifies as a rural agricultural land, no capital gains tax may arise on receipt of such compensation by your father.

Also Read: Will I have to pay tax on the residual amount after selling an old flat and buying a new one?

Further, even if the farmland does not qualify as a rural agricultural and falls under the purview of urban agricultural land, the compensation may still be exempt in the hands of your father under Section 10(37), subject to the fulfilment of certain conditions.

Further, even if your father purchases a flat in your name, there will be no tax implications in your hands as capital gains do not arise on receipt of a gift, and the gift is also exempt from capital gains tax for your father. In