URBAN AGRICULTURAL LAND

Saturday Brain Storming Thought (257) 11/01/2025

URBAN AGRICULTURAL LAND

As per Income Tax Act, Agriculture Land on an urban area which is situated within the jurisdiction of a municipality or cantonment board having a population of not less than 10000, or any area within such distance, measured aerially, is classified as Urban Agriculture Land

Agriculture Definition

Agriculture is the primary occupation of most of the people in India

The term Agriculture was not defined by Income Tax

Generally, cultivation of the field involving human skill and labour on the land can be broadly termed as agriculture

Income from Agriculture Land might come from the rent or sale of land, cultivation or farming etc

Capital Asset Definition

As per Income Tax Act, property of any kind held by any person whether or not connected with his business or profession is a capital asset

Rural Agriculture Land

Rural Agriculture Land in India means an agriculture land in india which is not situated in any specified area

There is No Capital Gain Tax on Sale of Rural Agriculture Land

We need to check with the Municipal office nearest location of land whether the land falls under Rural area or Urban area

Irrespective of whether the land is a capital asset or not, one must file their taxes and include such sale value either taxable or exempt to avoid future queries from the Income Tax department

Urban Agriculture Land

1) Situated in any area within the jurisdiction of the municipality or cantonment board having a population of not less than 10000

2) Situated in any area within such distance, measured aerially, in relation to the range of population as shown below

a) Population is more than 10000 and less than 100000 – 2 kM

2) Population is more than 100000 and less than 1000000 – 6 kM

3) Population is equal to or more than 1000000 – 8 kM

Taxability for Urban Agriculture Land

Sale of Urban Agriculture Land is taxable under the head of Capital Gains

Gain Tax Rate for Sale of Urban Agriculture Land

1) With effect from 23/07/2024, the long term capital gains is taxable @ 12.50% for the Urban Agriculture Land sold after 23/07/2024

2) If the urban agriculture land is acquired before 23/07/2024, the taxpayer has an option to choose 12.50% rate without indexation or 20% with indexation

However the maximum tax relief from 20% with indexation is up to an extent of CG Tax @ 12.50%

3) If the Urban Agriculture Land is sold before 2 years of purchase, it is classified as Short term and taxable @ slab rates

Reinvestment for Tax saving

If the individual or HUF has sold Urban Agriculture Land which was used for agriculture in the previous 2 years preceding the date of transfer, the taxpayer can invest either in rural or urban agriculture within 2 years from the date of sale

Taxability of Agriculture Land located outside india

The Agriculture Land which is located outside india is always a Capital Asset and the sale of Foreign Agriculture Land is taxable under the head Capital Gains

Compulsory acquisition of Agriculture Land

Compulsory acquisition means Governments power to acquire the rights in land for development

Compulsory Acquisition of Rural Agriculture Land

As per Rural Agriculture land does not comes under the definition of capital asset, the proceeds from compulsory acquisition of rural agriculture land is not taxable

Compulsory Acquisition of Urban Agriculture Land

Compensation or enhanced compensation received from compulsory acquisition of urban agriculture land is exempted from tax only if such land is used for agriculture purposes during the previous 2 years preceding the date of transfer

It is covered under section 10(37)

Taxability of Compensation received under RFCTLARR Act , 2013

RFCTLARR stands for Right to Fair Compensation and Transperency in Land Acquisition, Rehabilitation and Resettlement Act

1) RFCTLARR Act came into effect from 01/01/2014

2) Compensation received under RFCTLARR Act either from Agriculture land or Non-Agriculture land is exempted from the income tax

3) CBDT has clarified that compensation received under RFCTLARR Act shall also be not taxable under the provisions of income tax act even if there is no specific provision for exemption of such compensation in the income tax act 1961

TDS on Sale or Purchase of Agriculture Land

1) No TDS is required to be deducted on purchase of Rural Agriculture land of value more than Rs 50 Lakhs

2) TDS is required to be deducted @ 1% on purchase of Urban Agriculture Land if the value is more than Rs 50 Lakhs under section 194IA

Purchase of Agriculture Land by NRI

1) NRIs cannot purchase agriculture land, farm houses or plantation properties in India

2) If NRI wants to purchase agriculture land in india, they needs to obtain permission from the RBI

Agriculture Income

1) Rent or revenue derived from land situated in India and used for agriculture purposes

2) Income received from land by agriculture including processing of agriculture produce to render fit for the market or sale of such produce

3) Income derived from any farm building required for agriculture operations

4) Any income from saplings or seedlings grown in a nursery

Disclosure of Agriculture Land in ITR

In Schedule Exempt Income (EI), you need to provide your details of exempt income ie, income not to be included in total income or not chargeable to tax

Limit of Cash Transactions on sale of agriculture land

The maximum cash transaction on the sale of agriculture land is Rs 2 Lakhs

Size of agriculture land and its tax status relation

The size of the agriculture land does not typically impact it’s tax status

The tax status is determined by the location of the land and its proximity to a municipality or cantonment board

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