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Capital Gains Tax On Sale Of Agricultural Land

Selling agricultural land, whether inherited or owned, may raise questions about potential capital gains tax. Agricultural land in rural areas in India is generally not considered a capital asset, leading to no taxation on the gains from its sale.

In India, agricultural land in rural areas is not considered as capital asset and no tax is applicable for capital gains on sale of such land.

Types of Agricultural Land

Rural Agricultural land: Agriculture lands in India are categorized 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 utilization 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.

*Disclaimer: Content taken from News 18 e-news paper

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