Agriculture is the backbone of the Indian economy, the agricultural land provides employment to many people and produces food to feed the nation. Agricultural land means land upon which agricultural activities are carried out. From an Income tax perspective, agricultural land is classified into two types
The definition of Rural Agriculture Land is 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-
(i) more than 2 km from the local limits of the municipality and which has a population of more than 10,000 but not exceeding 1,00,000; or
(ii) more than 6 km from the local limits of the municipality and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
(iii) more than 8 km from the local limits of the municipality and which has a population of more than 10,00,000.
The definition of Urban Agricultural Land: If the agricultural land does not satisfy the conditions of rural agricultural land, then it will be considered urban agricultural land. i.e., any land that is not rural agricultural land will be considered urban agricultural land.
Urban agricultural land ( land which is not rural land) is considered a capital asset. The taxability of Urban Agriculture land is as follows
Long-term capital gain - Holding Period greater than 2 years and tax @ 20% will be levied after considering the indexation benefit.
Short-Term capital gain - Holding Period less than 2 years and tax @ Slab rates will be levied.
The exemption that can be claimed on the Sale of Urban Agricultural Land-
Condition to claim exemption u/s 10(37)
If the agricultural land is in a non-rural area, capital gains tax exemption can be claimed under Section 54B of the Income Tax Act when the following conditions are fulfilled:
Since Rural agricultural Land is not a capital asset as per the definition of the Income-tax Act, any gains arising from the same are not taxable. Income from agricultural land is exempt u/s 10(1) and needs to be disclosed in Schedule EI of ITR. However, profit on the sale of agricultural land, which is non taxable in nature, need not be disclosed in the income tax return.
Urban Agricultural Land is a capital asset, and the sale of such assets needs to be disclosed in Schedule CG in ITR. You can reduce the Indexed cost of acquisition and improvement from such sale value. You can also claim exemption u/s 54B, 54EC and 54F on the sale of Urban Agricultural Land
Tax Deducted at Source (TDS) at 1% should be deducted on the sale or purchase of transactions involving the sale of property where the transaction value exceeds Rs.50 Lakhs. However, Section 194IA for TDS on the property is not applicable on the sale or purchase of agricultural land even when the transaction value exceeds Rs. 50 lakhs.