Land Classification and Capital Gains Tax Calculator

📘 Land Classification Rules (as per Section 2(14) of Income Tax Act)

To determine whether your land is classified as Rural Agricultural Land (exempt from Capital Gains Tax) or Urban Agricultural Land (taxable), use the rules below:

• Population ≤ 10,000: Land is considered rural regardless of distance.
• Population > 10,000 and ≤ 1,00,000: Land must be more than 2 KM from the municipality or cantonment board.
• Population > 1,00,000 and ≤ 10,00,000: Land must be more than 6 KM from the municipality or cantonment board.
• Population > 10,00,000: Land must be more than 8 KM from the municipality or cantonment board.

Population of Municipality	Minimum Aerial Distance Required	Land Classification
Up to 10,000	No distance limit	Rural
10,001 to 1,00,000	More than 2 KM	Rural
1,00,001 to 10,00,000	More than 6 KM	Rural
More than 10,00,000	More than 8 KM	Rural
If distance criteria not met ➜ Urban Agricultural Land (Capital Gains Tax applies)

💡 When is Agricultural Land Taxable under Capital Gains?

Not all agricultural land is exempt from Capital Gains Tax. The key factors determining taxability are its location and distance from urban centers:

• Land situated within a municipality or cantonment board area is considered Urban Agricultural Land and is taxable.
• Even land outside such areas may be taxable if the population is high and the distance criteria are not met.
• Rural Agricultural Land (as per Section 2(14)) is fully exempt from Capital Gains Tax.
• If taxable, indexation benefit applies for long-term capital gains (held more than 24 months).

✅ Tip: Always verify the classification before planning a sale to avoid unexpected tax liabilities.

❓ Frequently Asked Questions (FAQs)

Q1. Is agricultural land always exempt from Capital Gains Tax?

No. Only Rural Agricultural Land is exempt. If it is classified as Urban Agricultural Land, tax applies as per capital gains rules.

Q2. How do I prove that my land is rural?

You need to establish two facts:

• The land is outside a notified municipality or cantonment board, and
• It satisfies the aerial distance and population criteria outlined in Section 2(14) of the Income Tax Act.

Q3. Is agricultural income also tax-free?

Yes, genuine agricultural income is exempt from income tax under Section 10(1), but the sale of agricultural land may attract capital gains tax if the land is classified as urban.

Q4. What documents should I keep as proof?

You should retain:

• Land ownership documents (e.g., 7/12 extract or record of rights)
• Google Maps screenshot showing aerial distance
• Municipality or Cantonment jurisdiction map
• Latest Census data for population of nearby urban areas

Disclaimer: This information has been carefully compiled and presented by FileBob.in to assist users in understanding the tax treatment of agricultural land. However, tax classification can be complex and case-specific. Users are strongly advised to consult a qualified tax professional or legal advisor before taking any decision based on this information.