Farm Land Proceed Taxation: Generally it is believed that no tax is to be paid on the income earned from farming or selling agricultural land. Let us know about the income tax rules related to this…
There is a common belief that income tax is not levied on the income earned from farming. Along with this, many people also believe that income tax is not levied on the income earned from sale of agricultural land. It is wrong to believe so. Today we are going to tell you in which cases income tax is payable on agricultural land i.e. farm land and in which cases it is not taxed…
There are two types of farm land
First of all, know that there are two types of farm lands. Farm land is also called agricultural land. The first category is rural i.e. agricultural land in rural areas and the second category is urban i.e. agricultural land in urban areas. There are many areas which fall in cities, but there are farms there too and people do farming, but according to income tax, they are not considered as agricultural land.
What does the income tax law say?
Which lands are considered agricultural land in the Income Tax Act, it has been clarified in Section 2 (14) of the Income Tax Act. If your agricultural land is within Municipality, Notified Area Committee, Town Area Committee or Cantonment Board and its population is 10,000 or more, then this land is not agricultural land as per 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 falling within a radius of 2 kilometers 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 within a radius of 6 kilometers around it is not agricultural land. Similarly, if the population of a municipality or cantonment is more than 10 lakh, the land located within an area of up to 8 kilometers will not be considered as agricultural land.
Tax will not be levied only on these lands
If your agricultural land does not fall within the scope mentioned above, then it will be considered as agricultural land in the eyes of Income Tax Law. Agricultural land is not considered a capital asset under income tax law. In such a situation, no capital gains tax will be levied on the income earned from its sale. Whereas if your agricultural land falls within the ranges mentioned above, then it will be considered a capital asset. They are called urban agricultural land and capital gains tax will have to be paid on the profits made from their sale.
Income tax rate will be decided like this
If the land (urban agriculture land) is sold after keeping it for 24 months then the profit will be considered as long term capital gain. There will be 20 percent tax on this with indexation benefit. In case of sale within 24 months, short term capital gains tax will be levied on the profit. The capital gain amount will be taxed as per your tax slab.
