Curated By: Business Desk
Last Updated: September 11, 2023, 07:00 IST
Do your parents intend to sell agricultural land, or do you intend to sell the land that you inherited? Every time you plan to sell agricultural land there could be confusion about the tax it may attract.
A piece of land is a capital asset, and when you sell it, the earnings are referred to as capital gain and a tax could be levied on this amount.
The profit made via the sale of a capital asset such as land or property is referred to as capital gains and the tax levied on this amount is known as capital gains tax.
When you sell agricultural land, it may be totally excluded from income tax in some situations, or it may not be taxed for capital gains. In India, agricultural land in rural areas is not considered as a capital asset. As a result, any gains from its sale are not taxable as capital gains.
Capital gains on compensation obtained on compulsory purchase of urban agricultural land are free from tax under Section 10(37) of the Income Tax Act.
Types of Agricultural Land
Rural Agricultural land:
Agriculture lands in India are categorised according to their proximity to municipalities and population density. The first group contains lands within a municipality with a population of less than 10,000 people, while the second includes territories outside the municipality. Within the second category, subcategories evaluate distance and population density.
Urban Agricultural land:
Meanwhile, specific laws apply to agricultural land located within a municipality with a population of up to 10,000 people. Land outside the municipality, on the other hand, is subject to restrictions based on its location and population.
Understanding these regulations is critical in identifying the precise criteria and recommendations for agricultural property depending on its location in relation to municipality boundaries and population density in the area. Compliance with these regulations is critical to ensuring effective management and utilisation of agricultural land in compliance with applicable laws.
Tax Liability on Sale of Agricultural Land
The taxability of agricultural land sales is determined by the nature of the land and the purpose for which it is held. Here are a few important factors to consider:
Tax on Sale of Rural Agricultural Land: Rural agricultural land does not qualify as a capital asset. As a result, no capital gains or losses result from the transfer or sale of rural agricultural land.
Urban Agricultural Land: If you own urban agricultural land, capital gains may accrue on its sale or transfer. The type of capital gains, whether long-term or short-term, will be determined by the asset’s holding time.
Holding Agricultural Land as Stock-in-Trade: Gains from the sale of agricultural land are taxed if you buy and sell it on a regular basis as part of your business and hold it as stock-in-trade. In such instances, there will be no capital gains tax on agricultural land.