Introduction
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Aricultural land | Profits on the sale of Aricultural land in India are generally tax-exempt. However, several conditions apply to such exemptions based on the location of the said land, current land use, ownership, and transaction amount. So, in the process of selling agricultural land, it is necessary to know about the tax deducted at source (TDS) in the sale of agricultural land.
Thinking of selling your inherited farmland? While this is undeniably a profitable transaction, it is equally important to be aware of its tax. Simply put, land is a capital asset, which means its sale leads to gains called capital gains, and such gains are generally taxable. However, the tax does not operate in the same way when the plot in question is agricultural land.
TDS on Sale of Aagricultural land
Before taxing Aricultural land, have a clear understanding of TDS. TDS stands for Tax Deducted at Source and refers to the tax collection mechanism introduced by the Government of India to ensure that tax is deducted at the source of income. TDS applies to various types of income, like salaries, interest, rent, and professional fees.
Under the TDS system, the payer has to deduct a certain percentage of the payment as tax and deposit it with the government. The amount deducted will be credited to the payer’s account as tax paid on their behalf. TDS rates vary depending on the nature of the income and the status of the recipient.
Rural Agricultural land
In rural areas, the sale or transfer of agricultural land is exempt from income tax. This exemption applies to both individuals and Hindu undivided families (HUFs). However, income from agricultural activities on rural agricultural land is taxable.
Urban Agricultural land
Urban agricultural land is a type of capital asset, although the entire capital gain arising from the compulsory acquisition of land is exempt from tax under Section 10(37). Exemptions are also available under Section 54B concerning the sale of urban agricultural land. However, Section 54B applies only to Hindu Undivided Families (HUF) and individuals.
Landowners must comprehend how much agricultural land is taxable in both rural and urban areas. Income from farming operations is taxable, even though rural agricultural land is normally exempt from income tax. On the other hand, urban agricultural land is subject to tax if it is not being used for agricultural purposes.
Current TDS for Sale of Agricultural land
The transaction value is Rs. 50,00,000, and one percent TDS is deducted on the sale or purchase of immovable property by individuals. However, this is not applicable even if the TDS rates specified under Section 194IA for agricultural land transactions are above $50,000.
Agricultural Income
Land that has earned agricultural income for the past two years can be classified as agricultural land. This classification enables you to claim exemptions under Section 10(1) of the Income Tax Act.
Conclusion
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