In India, agricultural lands are divided into groups based on population density and distance from municipalities.
Land is a capital asset, and when you sell it, the proceeds are known as capital gains, and you can be subject to tax on them.
Capital gains are the proceeds from the sale of a capital asset, such as real estate or lands, and capital gains tax is the charge placed on these proceeds.
In rare circumstances, the sale of agricultural land may be utterly exempt from income tax or may not be subject to capital gains tax. Rural agricultural land is not regarded as a capital asset in India. Any profits from its sale are therefore not subject to capital gains tax.
According to section 10(37) of the Income Tax Act, capital gains on compensation from the forced purchase of urban agricultural land are not taxable.
Types of Agricultural Land
Rural Agricultural Land: In India, agricultural areas are divided into groups based on population density and distance from municipalities. Lands in a municipality with fewer than 10,000 residents are included in the first group, while areas beyond the municipality are included in the second. Subcategories within the second category assess population density and distance.
Urban Agricultural Land: Agricultural land situated within a municipality with a population of up to 10,000 people, however, is subject to unique restrictions. On the other hand, land outside the municipality is subjected to limitations depending on its location and population.
Understanding these regulations is essential to determining the specific standards and advice for agricultural land depending on where it is in relation to the boundaries of the municipality and the local population density. To ensure efficient management and use of agricultural land in line with applicable laws, compliance with these regulations is essential.
Agricultural Land Sale Tax Liability
Depending on the land’s characteristics and intended use, agricultural land sales may or may not be taxable. Here are a few crucial things to think about:
Tax on sale of Rural Agricultural land: land used for agriculture in rural areas is not a capital asset. As a result, the transfer or sale of rural agricultural land does not result in any capital gains or losses
Land used for Urban Agriculture: If you possess land used for urban agriculture, financial gains may be realized upon sale or transfer. The length of time an asset is held determines the kind of capital gains, whether long-term or short-term.
Holding Agricultural Land as Stock-in-Trade: If you regularly buy and sell agricultural land as part of your business and hold it as stock-in-trade, the gains from its sale are taxed. A capital gains tax will not apply to agricultural land in such circumstances.