Sandra: Maximum Money: Is Agricultural Land a ...

by Jimmy on October 5, 2011

Indian ministers can?t seem to get enough of agricultural land.?Many of them hold a bulk of their wealth in agricultural land, according to their statements of assets?published recently.?Union Minister of Power Sushilkumar Shinde owns 10 hectares or around one million square feet of agricultural land, while President of India Pratibha Patil owns around eight hectares or?861,000 square feet.?It?s not just inherited land or the older politicians that we are talking about.?Sachin Pilot, the 34-year-old minister of state for communications and information technology, bought nearly five hectares of agricultural land in Uttar Pradesh in May, adding to his previous holdings in the state.?Even our celebrities love this stuff. Bollywood star Amitabh Bachchan has bought agricultural land in Maharashtra and his?home state Uttar Pradesh in recent years.?So, what?s this fascination for agricultural land??As an investment, agricultural land has a lot going for it.?The biggest attraction is the tax break.?Agricultural land can generate three main types of income ? profits from the sale of crops grown on the land, rental income by letting out the land to a farmer, or income from any dwelling or house built on the agricultural land.?All of these are tax-free, says Rajesh Srinivasan, senior director at tax and consulting firm Deloitte Touche Tohmatsu India Pvt.?If you have losses on the crops grown, you can offset it against other agricultural income (but not against your overall income). In addition, agricultural land is free from the wealth tax which is typically levied on benefits derived from property.?There also handsome profits to be made if a company or industrial house wants to buy agricultural land.?Harsimran Singh, a property developer in the Punjab city of Ludhiana, says he has converted 150 acres of agricultural land into land for urban use, following which the price of the land went up 400%. More recently, though, Mr. Singh says such conversions have stalled because the Punjab state government has imposed a hefty fee on the process.?Of course, a conversion is not enough to guarantee higher prices ? sometimes owners have to fight for it.?Recently, farmers in Noida, Uttar Pradesh, were fighting to get more than?twice the price originally offered by the government for their land.?In one success story, earlier this year, farmers in Barmer, Rajasthan, got two companies who were setting up shop there to pay them more than 50 times the price originally proposed. Some of these farmers are now rupee millionaires,?according to reports.?Our ministers are sitting on massive paper gains from their agricultural land holdings.?One hectare of land in Maharashtra which Mr. Shinde purchased in January 2000, for 59,000 rupees ($1,200) has gained more than 10 times in value, according to Mr. Shinde?s declaration on July 1. In comparison, the Bombay Stock Exchange?s Sensitive Index has gained only two-and-a-half times in value between mid-January 2000 and the end of June.?Mr. Shinde didn?t respond to a request for comment. Neither did Mr. Pilot or President Patil.?So, should we all be following the ministers? lead and becoming land barons??Tempting as this investment is, for the average Indian, buying agricultural land is a risky ? if not impossible ? business and should probably be avoided.?For a start, several states don?t allow individuals to buy agricultural land unless they have a background in farming.?Trying to get around that rule can be troublesome as Big B found. He had to return some of the agricultural land he bought in Uttar Pradesh, following protests from villagers that?he was not a farmer.?Real estate dealer Dhanpal Shrivastava of Bareilly city in U.P. says he has helped several non-farmers buy agricultural land near Bareilly, and has had no problems with that. But even he concedes that there isn?t enough clarity about these laws.?Individuals who do get hold of some agricultural land can find it tough to manage these properties, especially if they or a trusted family member doesn?t live at or near the property.?If you decide to use it for cultivation ? or rent it to a farmer for cultivation ? then you are dependent on the vagaries of the weather, and other plights befalling Indian farmers.?In addition, there?s always the Indian risk of illegal encroachment, or frankly, of being sold a dud piece of land.??The documentation and the legal (complications) are too much? says Sudeep Chandran, founder of TerraFirma Developers and Promoters, a Bangalore real estate firm which helps companies acquire land in Karnataka.?For most of us, agricultural land remains an attractive investment on paper alone.

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