Selling agricultural land still tax-free, but there's a catch

Understanding the key factors that define agricultural land and the capital gains implications

- Jash Kriplani

Agricultural income is tax-free, and selling farmland can be, too—but only if it qualifies as rural agricultural land. So, what exactly makes land 'rural' in the eyes of the taxman? The answer lies in a set of specific conditions that could mean the difference between zero tax and a hefty capital gains bill.

What is rural agricultural land? To be considered rural agricultural land, the property must not be located within the limits of a municipal or cantonment board that has a population of 10,000 or more, according to the last census. Remember, the last country-wide census was done only in 2011. The 10-year census that was due in 2021 was suspended due to the covid-19 pandemic.

If the population of the municipal or cantonment board is more than 10,000 but less than 100,000, then the land needs to be 2 km further away from its limits, to qualify as rural agricultural land. Distance is measured as a straight-line path, starting from the limits of the municipal or cantonment board.

Note: the typical distance through road is not considered as roads may not necessarily follow a straight path and if the road connectivity is poor, land may inadvertently fall within the distance threshold and qualify as rural agricultural land.