Rural Agricultural Lands under Capital Asset :
We can note from the above definition that only rural agricultural lands in India are excluded from the purview of the term ‘capital asset’. Hence urban agricultural lands constitute capital assets. Accordingly, the agricultural land described in (a) and (b) below, being land situated within the specified urban limits, would fall within the definition of “capital asset”, and transfer of such land would attract capital gains tax –
(a) agricultural land situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to last preceding census, or
(b) agricultural land situated in any area within such distance, measured aerially, in relation to the range of population according to the last preceding census as shown hereunder –
| Shortest aerial distance from the local limits of a municipality or cantonment board referred to in item (a) | Population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. | |
| (i) | ≤ 2 kilometers | > 10,000 ≤ 1,00,000 |
| (ii) | ≤ 6 kilometers | > 1,00,000 ≤ 10,00,000 |
| (iii) | ≤ 8 kilometers | > 10,00,000 |
Example
| Area | Shortest aerial distance from the local limits of a municipality or cantonment board referred to in item (a) | Population according to the last preceding census of which the relevant figures have been published before the firs | Is the land situated in this area a capital asset? | |
| (i) | A | 1 km | 9,000 | No |
| (ii) | B | 1.5 kms | 12,000 | Yes |
| (iii) | C | 2 kms | 11,00,000 | Yes |
| (iv) | D | 3 kms | 80,000 | No |
| (v) | E | 4 kms | 3,00,000 | Yes |
| (vi) | F | 5 kms | 12,00,000 | Yes |
| (vii) | G | 6 kms | 8,000 | No |
| (viii) | H | 7 kms | 4,00,000 | No |
| (ix) | I | 8 kms | 10,50,000 | Yes |
| (X) | J | 9 kms | 15,00,000 | No |
Explanation regarding gains arising on the transfer of urban agricultural land – Explanation to section 2(1A) clarifies that capital gains arising from transfer of any agricultural land situated in any non-rural area (as explained above) will not constitute agricultural revenue within the meaning of section 2(1A). In other words, the capital gains arising from the transfer of such urban agricultural lands would not be treated as agricultural income for the purpose of exemption under section 10(1). Hence, such gains would be exigible to tax under section 45.