How to Buy Land in Maharashtra: Legal Rules, Ownership & Tax Benefits

Thinking of Buying Land in Maharashtra? Whether you're interested in an urban plot or agricultural land in Maharashtra, understanding the legal regulations is crucial. By knowing the Maharashtra land laws, you can avoid legal complications, save money, and make well-informed decisions.

While urban land ownership comes with no restrictions, owning agricultural land has specific limits, particularly for non-agriculturists, NRIs, and businesses. But don't worry! This comprehensive blog will walk you through the process of buying, selling, and holding land legally in Maharashtra. Learn how to navigate ownership restrictions, explore land transfer strategies, and discover smart solutions like company share transfers to expand your landholding the right way.

How Much Land Can You Legally Own?

1. Urban Lands:

• In November 2007, the Maharashtra State government removed the Urban Land Ceiling and Regulation Act (ULCRA), 1976 that set limits on urban land ownership.
• Since then, there are no ceiling limit on how much urban land a person can own.
• However, Land transactions and ownership in urban areas must comply with the regular property laws.

• The Maharashtra State government in Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961 has set a maximum ceiling limit for agricultural land holdings by an Indian Resident.
• The limit depends on factors like the irrigational facility, productivity, location, etc as stated in the act.
• Non-Resident Indians (NRI’s) cannot buy agricultural land in India as per FEMA regulations, restricting land ownership for non-residents.

Key Rules for Buying or Transferring Agricultural Land

 1. For Agriculturist:

• Agricultural land can be sold or leased to other farmers without any restrictions.
• Non-agriculturists are prohibited from buying Agricultural land for agricultural purpose.

2. For Non-agriculturist:

• Easier Purchase in Certain Areas: If the land is located within city limits (municipal corporation, municipal council, planning zones, etc.), non-agriculturist can buy it without any prior approvals. You can use it for things like a house, shop, or factory without any hassle.
• Buying Land Other than the above Areas: If the land is located in areas other than mentioned above, non-agriculturist can buy it only after prior approvals. You can use it for things like a house, shop, or factory without any hassle.
• Non-agriculturists who buy agricultural land must use it for the intended purpose within a given time.​
• If not used, they may pay some fees to extend the deadline for the intended purpose. If the land remains unused beyond the allowed time, authorities shall take back the land.
• After taking back the land, the authorities must follow the procedure given in the Maharashtra Ceiling Act, 1961. If the land is not sold through the process given in the act, it can be auctioned, but only after getting the necessary approvals and paying the required fees.

Note: For more details, please refer the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961.

Own land legally beyond the Limit

The Maharashtra Ceiling Act, 1961 puts lot of restrictions on how much agricultural land an individual or entity can own. However, if you wish to own any land over and above the legally allowed limit, you can do it legally. There are legal strategies to maximize land ownership beyond the permissible limit, few of them are listed below:

1. Form a Co-operative Society: Form a co-operative society jointly with others to collectively own land. The ceiling limit applies to the group, not individuals, allowing larger holdings.
2. Divide Land in the Family: Split land among family members to stay within individual limits and maximize overall ownership.
3. Change Land Use:  Convert agricultural land to non-agricultural purposes (e.g., residential or industrial) with permission, as non-agricultural land has no holding limits.
4. Lease Instead of Buying:  Lease land to use it without ownership restrictions or ceiling limits.
5. Create a Trust:  Set up a trust for specific purposes like education or charity, as trusts may be allowed to exceed normal limits.
6. Work Through Joint Ventures:  Partner with others to share ownership for large projects while staying within legal limits individually.
7. Own it through a company:  One of the most effective and legal ways to manage land beyond individual ownership limits is by owning it through a company. As a separate legal entity, a company can hold land in its own name, and ownership can be easily transferred from one person to another without much hassle. This strategy provides a flexible solution for expanding landholdings while staying within legal boundaries.

How Companies Can Hold Land Legally Using Share Transfers:

1. Transfer Shares (Control), Not sale of Land:

• One can manage large landholdings by transferring shares of a company (holding land parcel) instead of selling the land itself.
• This method allows for a change in control over the company without altering the ownership of the land, since the ownership still remains with the same company.

2. Legal Entity Status:

• A company is treated as a separate legal entity, meaning that the land remains under the company''s ownership and is not counted under individual ceiling limits for land ownership of Individuals, who in this case are owing the shares of the said company.
• This allows for flexibility in managing land while complying with legal restrictions.
• For example: If a company owns 50 acres of land, transferring shares to another person who already holds some acres of land, would enable the individual to control the land without worrying about individual ownership limits.

3. Benefits of Holding land through Company:

• ​Avoid breaching land ceiling laws: By using share transfers, companies can bypass restrictions on individual land ownership.
• Ease of change of control: Companies can easily change control (by change of shareholders) while keeping the land under corporate ownership.
• You can set up multiple companies to own different lands if a single company''s landholding exceeds the individual limit.
• Saving in Taxes/Stamp Duty.

4. Important Case Study: Shimmer Developers Pvt. Ltd. Case

• The case of Shimmer Developers Pvt. Ltd. supports the above approach.
• The Income Tax Appellate Tribunal, Delhi clarified that transferring shares of a company that owns land does not equate to transferring the property itself; rather, only the shareholding pattern changes.
• The company retains ownership of the property, which highlights that land owned by a company remains distinct from its shareholders.

5. Tax Implications:

• Stamp Duty:  
  • The transfer of shares incurs a relatively low stamp duty rate compared to the sale of land. For share transfers, the rates are:  
    • 0.015% for delivery-based shares.
    • 0.003% for non-delivery-based shares.
  • In contrast, stamp duty on the sale of land ranges from 5% to 7%, depending on state regulations and location of the land. 
  • This substantial difference highlights the financial advantages of transferring shares over land transactions.
• GST on Share Transfers:  
  • Share transfers are generally considered financial transactions and hence do not attract GST. 
• Income Tax Implications:  
  • In case the shares of the company (in which land is hold), are sold, the taxpayer can treat the same as sale of Investment and the taxability will be as Shares held as Investments sold. 
  • When shares are held as investments, the profits from their sale are classified as capital gains, which are subject to taxation based on the holding period of the assets. 
    • Short-Term Capital Gains (STCG): If shares of such company are held for less than 24 months, As of July 23, 2024, STCG on unlisted equity shares is taxed as per individual tax slabs.
    • Long-Term Capital Gains (LTCG):  If shares of such company are held for more than 24 months, LTCG on such unlisted shares shall be taxed at 12.5% on the amount of profit.

The below table provides a comparison, between a case where the taxpayer chooses to opt for buying Shares of a company (having Land parcel) vis-à-vis directly buying Land from the said Company.

*Note :

1. For transactions involving unlisted shares, if the sale price is below the FMV, the FMV will be considered as the sales consideration for tax purposes under Section 50CA of the Income Tax Act.

2.There will be no income tax on Sale of rural agricultural land, as it is exempt under Income-tax.

Conclusion

Buying land in Maharashtra requires a solid understanding of legal limits, especially for agricultural land. While urban land has no restrictions, agricultural land ownership is regulated, particularly for non-agriculturists and NRIs. Strategies like forming a company, share transfers, leasing, and land-use conversion allow investors to legally expand holdings while reducing tax and stamp duty costs. By leveraging these legal solutions, you can secure land ownership in Maharashtra smartly, avoid legal hurdles, and optimize your investment returns.

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Disclaimer:
This blog is for informational purposes only and does not constitute legal or tax advice. The legal and tax positions discussed are based on our interpretation of current laws, which may be subject to amendments and judicial rulings. Readers are encouraged to seek professional advice before making any decisions based on this content and to comply with applicable laws.