All about Capital gain Tax on Agricultural Land

Introduction

A piece of land used for agriculture is known as agricultural land. This article focuses on the tax that would be charged on capital gains resulting from the sale of agricultural land in India. A piece of agricultural land may be located either in a rural or non-rural region. Both scenarios will have different tax simplifications. Any gain or loss resulting from the transfer of a financial asset will, as appropriate, be regarded as a capital gain or loss. In this article we will discuss all about the Capital gain tax on Agricultural Land.

What are the types of Agricultural Land?

Understanding the distinction between land used for urban and rural agriculture is important.

1. Rural Agricultural land: Agriculture land in the country which refers to a piece of Indian agriculture. The cases in which the land is considered as an agricultural land are-

1. If it is located in a region under the control of a municipality and has a population of less than 10,000;
2. If located outside the municipality’s boundaries, and located at a distance measured-

• More than 2 kilometers from the municipality’s boundaries and with a population greater than 10,000 but less than 100,000
• More than 6 km from the municipality’s normal boundaries and more than 1,000,000 but not more than 10,00,000.
• More than 8 kilometers from the municipality’s local limits and more than 10,000 people live there.

2. Urban agricultural land: Urban agricultural land is land that is utilized for agriculture and is located in a specific area. The cases in which the land is considered as an agricultural land are-

Specified locations in regards to urban agricultural land-:

1. If it is located within the boundaries of a municipality and has a population of up to 10,000 people, or
2. If located beyond the municipality’s boundaries and located at a distance measured as –

• If it is located up to 2 kilometers from the municipality’s local borders with a population of at least 10,000 but not more than 100,000.
• If it is located up to 6 km from the municipality’s local limits with a population of at least 1,00,000 but not more than 10,00,000
• If it is located up to 8 kilometers from the municipality’s local limits and which has a population of at least 10,00,000.

What is the Tax on Agricultural Land?

• The Rural agricultural land is not considered as a capital asset, there are no capital gains or losses on its sale or transfer.
• Urban agricultural land is considered as a capital asset, profit will be released on its sale or transfer.

1. The number of years the taxpayer has owned the asset will determine the type of capital gain, such as long-term or short-term.
2. The capital gain on agricultural land is referred to as long term if the holding period exceeds two years. The gain is referred to as a short-term capital gain if the holding period is less than two years.
3. Long-term capital gains are subject to a 20% tax rate, whereas short-term capital gains are charged at a slab rate.

Suggested Read: How to start an Agricultural Business in India?

Conclusion

The sale of agricultural land located in urban area would be subject to capital gains tax as agricultural land located in an urban area would be regarded as a capital asset. In such a scenario, capital gains tax would be calculated similarly to calculated when selling any other type of property. To determine the capital gain tax on agricultural land, the Sale Price would be subtracted from the Acquisition and Improvement Costs.