Tax rules on agricultural land have always been crucial for farmers and landowners. The Income Tax Rules 2025 have introduced significant changes in tax rates and regulations concerning agricultural land. Let’s explore in simple terms how much tax applies to your land and under what conditions you may qualify for exemptions.
Classification of Agricultural Land
Agricultural land is primarily categorized into two types: rural agricultural land and urban agricultural land.
- Rural Agricultural Land: Found in villages or sparsely populated regions.
- Urban Agricultural Land: Located within municipal limits or designated urban areas.
Under the Income Tax Act, urban agricultural land is not considered agricultural land for tax purposes.
What Qualifies as Agricultural Land?
As per Section 2(14) of the Income Tax Act, land falling under the jurisdiction of a municipality, notified area committee, town area committee, or cantonment board, with a population exceeding 10,000, is not classified as agricultural land.
Additionally, if a municipality or cantonment board has a population of over 10 lakh, land within an 8 km radius will also not be regarded as agricultural land.
If your land falls outside these limits, it will be classified as rural agricultural land, making it exempt from capital gains tax upon sale since it is not considered a capital asset by the Income Tax Department.
Taxation on Urban Agricultural Land
For land categorized as urban agricultural land, tax calculations are as follows:
- Long-Term Capital Gain (LTCG): If the land has been held for over 24 months, any profit from its sale will be taxed at 20% with indexation benefits.
- Short-Term Capital Gain (STCG): If the land is sold within 24 months, the profit will be taxed as per your applicable income tax slab rates.
New Income Tax Slabs and Exemptions in 2025
The Budget 2025 has introduced revised tax slabs, providing relief to taxpayers:
- Income up to ₹12 lakh: No tax applicable.
- Salaried employees: Eligible for standard deduction, effectively making income up to ₹12.75 lakh tax-free.
This revision in tax policy aims to benefit the middle class by increasing disposable income and boosting purchasing power.
