India is an agricultural country. Even today, people living in rural areas are dependent on agriculture. Farmers earn their livelihood by farming. Many things are often heard about the income from farming. People believe that there is no tax on income from farming.
At the same time, many believe that income from the sale of agricultural land is not taxed. It’s wrong to think like that. Today we are going to tell you in which cases income tax has to be paid on agricultural land and in which cases it is not taxed. Let’s know more in detail.
What does the Income Tax Act say?
Section 2 (14) of the Income Tax Act makes it clear which lands are considered as agricultural lands. If your agricultural land is under a municipality, notified area committee, town area committee or cantonment board and has a population of 10,000 or more.
So this land is not agricultural land as per the income tax law. If the population of a municipality or cantonment board is more than 10 thousand but up to 1 lakh, then the land within 2 km is not agricultural land.
If the population of a municipality or cantonment board is more than 1 lakh but up to 10 lakh, then the area of 6 km radius around it is not agricultural land. Similarly, if the population of a municipality or cantonment is more than 10 lakh, then the land located in the area up to 8 km will not be considered as agricultural land.
Tax will not be levied only on these lands
If your agricultural land does not come under the purview of the above, then it will be considered agricultural land in the eyes of the Income Tax Act. Under the Income Tax Act, agricultural land is not considered a capital asset. In such a situation, no capital gains tax will be levied on the income from its sale.
At the same time, if your agricultural land falls within the limits mentioned above, it will be considered a capital asset. These are called urban agricultural lands and capital gains tax will have to be paid on the profits made from their sale.