Agriculture Land & Income Tax .....Confusing Yet Year.

Agriculture Land & Income Tax...Confusing Yet Year.....

What Is Agricultural Land As Per Income Tax Act?? 

Agricultural income refers to income earned or revenue derived from sources that include farming land, buildings on or identified with agricultural land and commercial produce from a horticultural land. Agricultural income is defined under section 2(1A) of the Income Tax Act, 1961.

Capital Gain has more debatable issues than any other source of income under the Income Tax. Today in this article I have tried to take one such issue under the capital gain. The issue is the taxability of Agriculture Land.

There are two categories, For Income Tax purposes, in which the agriculture land can be divided into the following two parts.

• Urban Agriculture Land: Urban Agriculture Land is a capital asset under the Income Tax Act and is taxable like other assets.

• Rural Agriculture Land: Rural agriculture land is not considered as a capital asset under the Income Tax Act, 1961 and is not taxable under the Income Tax Act, 1961.

The first and foremost thing to understand is the definition U/s 2(14) of the Income Tax Act, 1961. There has been a major amendment in the definition of Capital assets w.e.f. 01.04.2013.

From A Y 2014 15, i.e. taxability w.e.f. 01.04.2013:

The extract of section 2(14) is produced below:

According to section 2(14) of the Income-tax Act, the word 'capital asset' means, 'property of any kind held by an assessee'. ... As per the definition of capital assets under section 2(14) of the Act, any kind of property held by an assessee would come within the definition of 'capital asset'

But Does Not Include-

• Stock in trade, raw material or consumable stores held for the purpose of business or profession ( surplus arises out of these are taxed under the head profits and gains of business or profession);

• Personal effects of movable nature including wearing apparel, furniture, and vehicle used for personal use by the taxpayer or any dependent member of such taxpayer. Following assets shall not be treated as personal effects as these are specifically excluded from the list;

1. Jewelry
2. Archaeological collections
3. Drawings
4. Painting
5. Sculptures
6. Any work of art

• Rural agricultural land i.e. agricultural land which is not situated within the specified area as mentioned under section 2(1A) of IT act.

• Gold bond as issued by the central government (these instruments are not in existence now).

• Gold deposit bonds issued under the gold deposit scheme, 1999.

Agricultural land in India, not being land situate-

 A) Land Situated In an area which is comprised within the jurisdiction of the municipality ( whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which as the population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year.

B) In any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (A) above as the Central Government may, having regard to the extent of, any scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Official Gazzate.

From the above definition, it is clear that to be a rural agriculture land, the land has to qualify both the below-mentioned conditions.

1. The land should be Out of the Municipality or Nagar Palika.

2. The land should be aerially out of:

• 2 Kms in case of nearest Municipality or Nagar Palika having a population of more than 10000 but not exceeding 100000/-

• 6 Kms in case of nearest Municipality or Nagar Palika having a population of more than 1,00,000 but not exceeding 10,00,000/-

• 8 Kms in case of nearest Municipality or Nagar Palika having a population of more than10,00,000/-

Up to A Y 2013 14, i.e. up to 31.03.2013:

The extract of section 2(14) is produced below:

“capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;

[(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him but excludes—

(a) jewelry;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

 6½ percent Gold Bonds, 1977, or 7 percent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government ;]

 Special Bearer Bonds, 1991, issued by the Central Government ;

 Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.