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Is AGRICULTURAL LAND Completely TAX FREE With ₹1000 CR Profit
Friends, there is immense confusion in India regarding whether Income Tax applies to the sale of agricultural land. Some believe Rural Agricultural Land is completely tax-free, while others argue that tax applies to Urban Agricultural Land. However, simply knowing this is not enough! Income Tax Officers require the taxpayer to prove that their land qualifies as the type of agricultural land on which tax will not be levied.
In this video, drawing from 10 years of practical experience, we completely decode the Income Tax on agricultural land, covering:
1. Determining if your land falls into the Rural Agricultural Land or Urban Agricultural Land category.
2. Whether the tax will be applicable or zero.
3. How to create and collect crucial proofs (such as population records, aerial distance measurements, and agricultural activity documentation).
4. A brief discussion on how Capital Gains are calculated if tax applies.
5. How tax can be saved (details to follow in subsequent content).
If you are planning to sell agricultural land, this video could potentially save you millions of rupees.
The Core Distinction as per Income Tax Act:
The Income Tax Act does not specifically define land as 'Rural' or 'Urban'. Instead, it classifies agricultural land into two types:
1. Land that is a Capital Asset (this is effectively 'Urban Land,' subject to Capital Gains Tax upon sale).
2. Land that is Not a Capital Asset (this is effectively 'Rural Land,' on which no Capital Gains Tax applies).
Achieving 100% Tax-Free Status:
If your land is classified as 'Rural Agricultural Land' (i.e., not a Capital Asset), no tax will be levied on the sale, even if your profit is ₹1 crore, ₹100 crore, or ₹1,000 crore.
To qualify as Rural Agricultural Land, five mega conditions must be satisfied simultaneously:
1. The land must have been under agricultural use or activity in the last two years.
2. The land must not be situated within the limits of a Municipality.
3. The location must pass the specified Population check.
4. The Aerial Distance (point-to-point) must be beyond a certain distance from the Municipal limits.
5. You must possess proof documents (like Khusra, Khatauni, or Tehsildar certificates) proving agricultural activity.
Crucial Distance and Population Criteria:
The mandatory aerial distance from the nearest Municipality limits depends on the population of that Municipality:
• Population 10,000 to 1 Lakh: Land must be situated more than 2 km away.
• Population 1 Lakh to 10 Lakh: Land must be situated more than 6 km away.
• Population above 10 Lakh (Major Cities): Land must be situated more than 8 km away.
Proof of Distance: The distance measured must be the Aerial Straight Line Distance, not the distance by road. The video includes a demonstration using Google Maps to accurately measure this point-to-point straight-line distance.
Proof of Ownership and Activity: Essential documents to prove agricultural activity include certificates from the Patwari or Tehsildar, and records like Khusra and Khatauni which detail what kind of crop was sown in the last couple of years. The burden of providing these proofs rests entirely on the taxpayer.
What if your Land is Classified as 'Urban'?
If your land fails even one of these conditions (e.g., population criteria, distance criteria, or lack of agricultural activity proof), it will be classified as 'Urban Agricultural Land,' and tax will be levied on the sale.
Subscribe now to ensure you don't miss the next part where we discuss tax calculation and detailed strategies on how to save tax if your land is deemed 'Urban'!
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