The Agriculture sector in India has enjoyed a special treatment in the current taxation regime and has been granted various tax exemptions and concessions both by the Central as well as the State Governments. In this article we are discussing some of the relevant provisions of Income tax applicable for taxability of agriculture land.
A) What is an Agricultural land?
Any land used for agricultural purpose shall be treated as agricultural land. It can be situated in rural area or urban area.
B) Income Tax Implication on sale of Agriculture land?
a) Land is a capital asset.
b) Capital asset typically refers to anything that you own for personal or investment purposes. It includes all kinds of property; movable or immovable, tangible or intangible, fixed or circulating.
c) When you sell a capital asset, the difference between the purchase price of the asset and the amount you sell it for is a capital gain or a capital loss. Capital gains and losses are classified as long-term or short-term.
d) If your agricultural land is in rural area, such land is not treated as Capital asset and hence no capital gain taxes are levied. Agricultural land in Rural Area India is not considered a capital asset. Therefore any gains from its sale are not taxable under the head Capital Gains.
C) Now whats the Definition of Rural land?
a) Rural Area means any area which is outside the jurisdiction of municipality having a population of 10,000 or more; or
b) Meet the following criteria-
i) If the population of the municipality is more than 10,000 but not more than 1 lakh- 2 kilometers away from the local limits of municipality.
ii) If the population of the municipality is more than 1 lakh but not more than 10 lakh- 6 kilometers away from the local limits of municipality.
iii) If the population of the municipality is more than 10 lakh- 8 kilometers away from the local limits of municipality
D) Some ways of avoiding capital gain on sale of urban agriculture land?
a) Deduction U/s 54F
Reinvest entire proceeds to purchase a residential house within 1 year before or 2 years after from the date of sale of land or construct the residential house within 3 years from the date of sale. (should not own more than one residential house at the time of transfer)
b) Deduction U/s 54B
i) Reinvest to purchase another agriculture land within 2 years of sale of land (should be using the agriculture land for a period of two years prior to the date of transfer).
ii) New agriculture land shall be held atleast for period of 3 years.
Hope this article clear your most of tanglings in mind about the taxability of agriculture land.