sale of agri land capital gain

Selling agricultural land can bring in a good return — but is it taxable? The answer depends on where the land is located and how it’s classified under the Income Tax Act, 1961.

Let’s break down everything you need to know.

???? Is Capital Gain on Sale of Agricultural Land Taxable?
✅ Rural Agricultural Land – Not Taxable
If the land is classified as rural, then no capital gain tax is applicable on its sale.

❌ Urban Agricultural Land – Taxable
If the land is classified as urban, then capital gains tax is applicable — either short-term or long-term, depending on the holding period.

???? How to Determine Urban vs. Rural Land?
According to the Income Tax Act:
Land is considered rural if it:

Is not within the limits of a municipality or cantonment board having a population of 10,000 or more, and

Is more than:

2 km from municipality (population > 10,000 & ≤ 1 lakh)

6 km from municipality (population > 1 lakh & ≤ 10 lakh)

8 km from municipality (population > 10 lakh)

???? If land falls within these urban limits — it is considered capital asset and gains on sale are taxable.

???? Types of Capital Gains
1. Short-Term Capital Gain (STCG)
If land is held for ≤ 24 months

Taxed at your slab rate

2. Long-Term Capital Gain (LTCG)
If held for > 24 months

Taxed at 20% with indexation benefit

✅ Exemptions to Save Tax
If your agricultural land is taxable (urban), you can still claim exemptions under the Income Tax Act:

???? Section 54B – Reinvestment in Agricultural Land
Applicable to individuals or HUF

Sold land must have been used for agriculture for at least 2 years

Must purchase another agricultural land within 2 years

Exemption = Capital gain or cost of new land, whichever is lower

???? Section 54F – Invest in Residential House
If entire sale proceeds are invested in a residential house

You must not own more than one house at the time of sale

Proportional exemption allowed

???? Section 10(37) – Compulsory Acquisition
If land is compulsorily acquired by government and compensation is received

No tax on capital gain (conditions apply)