Many landowners or farmers are uncertain about the tax implications when they sell agricultural land, whether reporting requirements. This article addresses common queries regarding whether the amount received from the sale of agricultural land needs to be reported in the ITR.
Agricultural land is broadly classified into two categories for tax purposes: one is rural and the other is urban.
Rural Agricultural Land
Rural agricultural land is generally not considered a capital asset under the Indian Tax Laws, as its sale is not subject to tax.
No Reporting Required
If you sell rural agricultural land, the proceeds do not have to be shown in your ITR.
When to Show in ITR?
Sale of rural agricultural land is exempted only for farmers.
But if the land is sold as part of a business, it becomes taxable and does not qualify as rural agricultural land.
TDS and Buyer Caution
No TDS is applicable to the sale of rural agricultural land, as no tax is payable on it. But sometime buyers mistakenly deduct TDS, thinking it's required. If they do:
- It creates a digital trail in the tax system.
- It could wrongly classify your land as urban, attracting unnecessary tax scrutiny.
Always inform the buyer clearly that no TDS should be deducted if the land is rural.
Risk of Misreporting
Some individuals may choose to report in ITR, but it is not required by law, and doing so may lead to confusion or unnecessary scrutiny.
There is no specific option in the ITR to report the sale of rural agricultural land, and it is generally not required or advisable to show it.
Reporting Under 'Exempt Income'
Some people try to show sale proceeds of rural agricultural land under "Exempt Income" in the ITR, which is incorrect and risky.
Reason -
- The sale of agricultural land is not considered "agricultural income," which refers to income from farming activities.
- It's not even required to be disclosed.
Reporting unnecessary large sums as agricultural income may trigger scrutiny from the IT Department, leading to inquiries about the source of funds and land holdings.
Know more about - Agricultural Income in India: Exploring Tax Exemptions & Deductions
Do not Voluntarily Disclose Source of Funds
For expenses made from the sale proceeds such as buying a car or house etc. - the source of funds can be explained as coming from the sale of non-taxable rural agricultural land, even without explicit ITR reporting.
Urban Agricultural Land
Urban agricultural land is classified as a capital asset and is taxable in India upon sale.
TDS @1% is typically deducted on the sale of urban agricultural land.
Tax on the sale of urban agricultural land can be exempted by reinvesting the proceeds u/s 54B (for purchasing new agricultural land) or u/s 54 (for purchasing a residential house) or u/s 54F (for capital gain on transfer of certain assets).
The sale of urban agricultural land must be reported in the ITR.
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