RURAL AGRICULTURAL LAND: BY-ER. AVINASH KULKARNI

Saturday Brain Storming Thought (258) 18/01/2025

RURAL AGRICULTURAL LAND

Rural Agricultural Land refers to land located outside of urban areas, which is primarily used for agricultural purpose

The definition may vary depending on the local laws and regulations

Criteria for classifying Rural Agricultural Land in India

1) Land area and population

The land should be within the municipality jurisdiction to be classified as rural agricultural, along with a population below 10000

This ensures that the land is suitable for agricultural activities

2) Location

The land should be located in rural areas, away from urban or industrial zones

This ensures that the land is primarily used for agricultural purposes and not for commercial or residential development

a) Population above 10000 and below 1 Lakh – 2 kM

b) Population above 1 Lakh and below 10 Lakh – 6 kM

c) Population above 10 Lakh – 8 kM

3) Legal Documentation

Proper legal documentation, including land ownership records, should be in place to classify the land as rural agricultural

This ensures transparency and authenticity in land transactions

Essential documents to buy Rural Agricultural Land

1) 7/12 extract

2) 8A extract

3) 6/12 extract

The 6/12 extract, also known as Ferfar document in Maharashtra, is essentially a document that tells the story of your plot of land, and serves as a record for every transaction that has happened on your piece of land over the years

4) Land revenue tax receipt

5) Village map

6) Title deed

7) Soil testing report

8) Encumbrance certificate

9) Registration of conveyance deed

Rural Agricultural Land taxability

Rural Agricultural Land is not considered as a Capital Asset and therefore gain on the sale of same is not subject to income tax

Showing sale of rural agricultural land in income tax return

Since rural agricultural land is not a capital asset, the proceeds from its sale are tax-free

You must complete Form ITR-2 and include all proceeds under “Schedule EI” under item 4

Proving rural agricultural land

Proving rural agricultural land in india typically involves documentation from two sources

1) Land revenue office

This government department maintains land records

Here, you can obtain documents that show the land classification as agricultural

2) Municipal Records

If the land is located near a municipal area, you might need documents from the municipality to prove if falls outside their limits and qualifies as rural

Agricultural Income

Agricultural income is defined under section 2(1A) of the income tax act

As per section 2(1A), agricultural income generally means,

1) Any rent or revenue derived from land which is situated in India and is used for agricultural purpose

2) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render fit for the market or sale of such produce

3) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A)

4) Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income

Sources of Agricultural income

1) Renting/Leasing agricultural land for agriculture, store room, residential place and outhouse

2) Money earned from trees growing in nurseries as seedlings or saplings

3) Renting/Leasing agricultural land for bu cultivator or farmer

4) Any income due to commercial use of agricultural land

5) The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed

Few exemptions to this agricultural income

1) Revenue from sale of processed produce of agricultural nature without agricultural activity

2) Revenue from extremely proceed produce

3) Revenue from trees that have been sold as timber

Key points for valid agricultural income

1) Income should be from an existent piece of land

2) Income should be from a piece of land that is used for agricultural operations

3) Income should stem from produce achieved after cultivation of the land

4) Income can be from a land that is not under the assessees ownership

Income tax for farmers

Currently, farmers in India are exempted from paying income tax to the government

Types of Agricultural Land

1) Warkas land

Low productivity land used to grow like nachani and warai during the mansoon

2) Jirayat land

Land used for seasonal crops like kharif and rabbi, which depends on annual rainfall

3) Bagayat land

Irrigated land that depends on water sources other than rain, like wells, bandharas and government irrigation department

4) Rice land

Land in coastal and heavy rainfall areas where rise is the main crop

Documents verification to prove agricultural land

1) Saledeed

2) Mutatiob records

3) Tax receipts

4) Land records

5) Encumbrance certificate

Rural Agricultural Land for capital gain tax purpose

1) Land primarily used for agricultural purpose

2) Land is located outside of urban areas

3) Certain local rules and regulations may cause changes in the precise definition

Conditions to be fulfilled for the exemption on the sale of rural agricultural land

1) The seller must have owned the agricultural land for at least two years prior to the sale in order to qualify for the exemption under section 54B

2) For the exemption to apply, the sale earnings also need to be reinvested within a certain amount of time in another parcel of rural agricultural property

Where to show the sale of rural agricultural land in income tax returns

1) Gains from rural agricultural land are not taxable since the income tax Act does not classify it as a capital asset

2) Revenue from rural agricultural land is required to be reported in schedule EI of the ITR and is exempt under section 10(1)

TDS applicability whike buying rural agricultural land

While buying rural agricultural land no TDS is applied, since such land is not considered as a capital asset

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