Is the sale of rural agricultural land taxable under Capital Gains?

No, rural agricultural land is not considered a capital asset under the Income Tax Act, and therefore, gains from its sale are not taxable.

How is rural agricultural land defined under the Income Tax Act?

Rural agricultural land is defined as land located in areas with a population of less than 10,000 or situated at specific distances from municipalities or cantonment boards based on population thresholds.

What are the tax options available after Union Budget 2024 for Long Term Capital Gains on urban agricultural land?

Taxpayers can either pay tax at 20% with indexation benefits or opt for a 12.5% tax rate without indexation benefits.

Is the sale of rural agricultural land taxable under Capital Gains?

No, rural agricultural land is not considered a capital asset under the Income Tax Act, and therefore, gains from its sale are not taxable.

How is rural agricultural land defined under the Income Tax Act?

Rural agricultural land is defined as land located in areas with a population of less than 10,000 or situated at specific distances from municipalities or cantonment boards based on population thresholds.

What are the tax options available after Union Budget 2024 for Long Term Capital Gains on urban agricultural land?

Taxpayers can either pay tax at 20% with indexation benefits or opt for a 12.5% tax rate without indexation benefits.

What are the tax options available after Union Budget 2024 for Long Term Capital Gains on urban agricultural land?

Taxpayers can either pay tax at 20% with indexation benefits or opt for a 12.5% tax rate without indexation benefits.

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Agricultural Land And Its Taxability Under Capital Gains

Q: What are the two categories of agricultural land for taxation purposes?

Agricultural land is categorised as rural agricultural land and urban agricultural land for taxation purposes under Capital Gains.

Q: How is urban agricultural land taxed in India?

Urban agricultural land is taxable based on the holding period. Long-term capital gains (holding period greater than 2 years) are taxed at 20% with indexation benefits, while short-term capital gains (holding period less than 2 years) are taxed at slab rates.

Q: What are the two categories of agricultural land for taxation purposes?

Agricultural land is categorised as rural agricultural land and urban agricultural land for taxation purposes under Capital Gains.

Q: How is urban agricultural land taxed in India?

Urban agricultural land is taxable based on the holding period. Long-term capital gains (holding period greater than 2 years) are taxed at 20% with indexation benefits, while short-term capital gains (holding period less than 2 years) are taxed at slab rates.

Alankar Mishra

Author

Updated: 28-01-2025 at 6:40 AM

Agricultural Land And Its Taxability Under Capital Gains

Agriculture is an essential activity in the Indian Economy and it accounts for nearly 14% of the Gross Domestic Product or GDP. The government releases multiple agricultural schemes from time to time to help farmers and assist in agriculture. Various exemptions and schemes have also been made with regards to agricultural land.

In some regions, subsidies are provided on the purchase of agricultural land. Various tax benefits are also offered to people owning or selling agricultural land. One such benefit is the treatment of agricultural land under the head of ‘Capital Gains’. Let us learn about it in depth!

How Is Agricultural Land Treated Under Capital Gains?

For taxation purposes, especially under the head of Capital Gains, agricultural land is divided into two categories, rural agricultural land and urban agricultural land. It is most important to note that while capital gains from the transfer of urban agricultural land are fully taxable, capital gains from the transfer of rural agricultural land are not taxable under law.

Rural agricultural land, in simple words, is not considered a capital asset under the Income Tax Act, thus making it exempt from taxation.

Under the Income Tax Act of 1961, Rural Agricultural Land is defined as follows:

It means an agricultural land in India –

(a) If situated in any area which is comprised within the jurisdiction of a municipality and its population is less than 10,000, or

(b) If situated outside the limits of the municipality, then situated at a distance measured-

Shortest aerial distance from the local limits of a municipality or cantonment board	Population according to the last census
< 2 kms	> 10,000
> 2 kms but < 6 kms	> 1,00,000
> 6 kms but < 8 kms	> 10,00,000
Any land that does not fulfil the above mentioned criteria falls under the category of urban agricultural land and shall be taxable under the taxation system.

How Is Urban Agricultural Land Taxed In India?

Since urban agricultural land is taxable, it is taxed by looking at the holding period. This implies that the capital gain from the transfer of such land will be taxed depending upon the time period for which such land has been held.

Long-term capital gain - Holding Period greater than 2 years - tax @ 20% will be levied after considering the indexation benefit.

Short-Term capital gain - Holding Period less than 2 years - tax @ Slab rates will be levied.

After Union Budget 2024, taxpayers now have an option of either paying tax according to the above mentioned rates of Long Term Capital Gains or by paying tax @ 12.5% without indexation benefits.

Certain exemptions may also be available to an individual or HUF (Hindu Undivided Family) under sections 54B, 54C and 54F.

Is TDS deductible On The Sale Of Agricultural Land?

In cases where the value of a property exceeds Rs. 50 Lakhs, 1% TDS is to be deducted on purchase or sale of properties. However, agricultural land is exempted from this provision as per Section 194A even if the value of property is more than Rs. 50 Lakhs.

Conclusion

One must be aware of all the tax benefits available under the Income Tax Act as it helps in saving tax and paying the rightful amount. Further, as a responsible citizen, you must pay your taxes on time and with the rightful consideration.

For more information, contact a chartered accountant or visit your nearest Income Tax Office. Visit Jaagruk Bharat for information on latest income tax notifications.

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