Now Reading: Sold agricultural land? Check if capital gains tax applies
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Sold agricultural land? Check if capital gains tax applies
If you sold agricultural land, whether you must pay capital gains tax depends on the land's location. Rural agricultural land is exempt from capital gains tax as it is not considered a capital asset under Section 2(14)(iii) of the Income Tax Act, 1961. Urban agricultural land, however, is a capital asset and attracts tax.
For urban land, if held for up to two years, gains are taxed as per your income tax slab. If held for more than two years, you can pay 20% tax with indexation benefit, or 12.5% without indexation. The land is rural if it lies beyond municipality limits with a population over 10,000, and beyond specified distances: 2 km for populations 10,000-1 lakh, 6 km for 1-10 lakh, and 8 km for over 10 lakh.
Inherited agricultural land is not taxed at inheritance, but sale of urban inherited land is taxable. Even tax-exempt sales must be reported in your ITR: rural land under Schedule EI (Exempt Income), urban land under Schedule CG (Capital Gains). Use ITR-2 for non-business income, or ITR-3 for business income.
Indian Opinion Analysis
The key test for tax exemption hinges on a land's distance from a municipal limit, which is measured aerially, not by road. Many sellers misjudge this, especially near expanding towns where populations cross the 10,000 or 1 lakh thresholds. For inherited land, the holding period of the previous owner counts, so a family plot held for decades can qualify as long-term even if you owned it only a year. The next time you file ITR, remember to report rural land under exempt income, not capital gains, to avoid a notice from the tax department.
Source: livemint.com
This story was synthesised by AI from the source linked above. Methodology and corrections.
