Consider the following statements:In India, income from allied agricultural activities like poultry

Question

Consider the following statements:In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.Which one of the following is correct in respect of the above statements?

Accepted Answer

Agricultural income is specifically defined under the Income Tax Act, and agricultural income is exempted from Income Tax. The following are some the examples of agricultural income: Income from the sale of seeds and replanted trees, Interest on capital received by a partner from a firm engaged in agricultural operations, Income from growing flowers and creepers, Rent received for agricultural land etc. Below are some examples of non-agricultural income: Income from poultry farming, dairy farming and bee hiving, Any dividend paid from an organization’s agriculture income etc. It is not exempted from taxation. Hence statement I is not correct. Under the Income-tax Act, 1961 of India, rural agricultural land is not considered a "capital asset", and hence any gain arising from its sale is not taxable as capital gains. Under section 2(14), the term "capital asset" excludes: "Agricultural land in India, which is not situated: within the jurisdiction of a municipality or cantonment board with a population of not less than 10,000; or within 2 km from such a municipality/cantonment (population 10,001–1,00,000), within 6 km (population 1,00,001–10,00,000), within 8 km (population more than 10,00,000)." On the other hand, urban agricultural land, which lies within specified municipal limits, is treated as a capital asset and is taxable when sold. Hence statement II is correct.