I have sold rural agricultural land which appears in AIS. How to mention it while filing ITR?

tax

Is agricultural land taxable? Does one need to declare it in ITR? Today's Ask wallet-Wise answers queries related to agricultural land.

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I will file ITR 2 form for financial year 2024-25. A rural agricultural land in a panchayat area was sold during the FY 2025 at a value much lower than circle rate. Now this sale transaction has been captured in my Annual Information Statement (AIS) under SFT-012. I understand that profits made on sale of rural agricultural land are exempted from income tax and are not required to be disclosed in ITR. Since the same is reflecting in my AIS, I feel that this needs to be reported in my ITR-2 to avoid any scrutiny in future. I thought of disclosing the same in schedule EI , but find that there is no provision to show profits on sale of rural agricultural land there. Please let me know where and how can I report this exemption in ITR-2?

Expert Advice: For the purpose of income tax agricultural lands are divided in two categories. First category of agricultural land is classified as rural agricultural land if it is situated beyond prescribed limit from the municipal limits which varies depending on the population of the municipality or cantonment board. The second category is referred to as non-rural agricultural land as the same is situated within prescribed distance of the municipality limit.

Profits on sale of the assets, which are defined as capital asset under the income tax laws, are taxed in India as long term capital gains or short term capital gains depending on the nature of the asset and its holding period. As per the definition of capital assets contained in section 2(14) an agricultural which is situated beyond the prescribed limit of municipal limit is not a capital asset but the non-rural agricultural land is considered as capital assets for income tax purposes.

Since the rural land sold by you is not considered as a capital asset for the limited purpose of computation of capital gains and therefore profits made on sale of such agricultural land are not to be treated an income at all but profits made on sale of a non-rural agricultural land are  treated as income and taxed as capital gains.

There is difference between a receipt being an exempt income and it not being an income at all. For example, agricultural income earned by the owner from cultivating it is an exempt income and therefore needs to be reported under the schedule EI (exempt income) but profit made on sale of a rural agricultural land is not an income at all and therefore you need not report the same in your ITR.

As far as your concern about the capturing of the transaction of sale of your rural land is concerned, in my opinion, you need not worry at all. In case you get any notice from income tax department for not reporting this transaction in your ITR, you can provide the proof of the land sold being a rural agricultural land and which should be sufficient. Please note that since the profits on sale of rural agricultural land are not treated as income, there are no tax implications for you having sold the same below the stamp duty rates.

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