Agricultural Land Sale Tax in India: Taxable or Not? (2026-27)

Selling agricultural land in India is not taxable if the land is rural, because rural agricultural land is not a "capital asset" under income-tax law, so there is no capital gain to tax. If the land is inside or close to a town, it is urban agricultural land, and the gain is taxed like any other property, with exemptions if you reinvest.

The whole question turns on one test: the town's population and the straight-line distance to its limits. This guide explains that test, the tax on urban farmland in FY 2026-27, the exemption sections, and what changes when the seller is an NRI or the land was inherited.

Is agricultural land a capital asset?

Only if it is urban. The definition of capital asset leaves out agricultural land in India unless it sits in or near a town. This was section 2(14)(iii) of the Income-tax Act, 1961; from 1 April 2026 the same words are in section 2(22) of the Income-tax Act, 2025.

Agricultural land is urban, and therefore a capital asset, if it is:

• inside a municipality, municipal corporation, notified area committee, town area committee or cantonment board with a population of 10,000 or more, or
• within these distances, measured aerially from the local limits of such a town:

Everything else is rural agricultural land. Check every town around the land, not just the nearest: a field 5 km from a small town may clear that town's 2 km band and still fall inside a big city's 8 km band.

The population is taken from the last census whose figures were published before the start of the tax year. For sales in FY 2026-27, that still means Census 2011 figures. Municipal limits, though, are today's limits, and many cities have grown outward.

Is your sale taxable? A 30-second check

Answer three questions to see which side of the line your land falls on.

30-second check

Is your sale taxable?

01Is the land recorded and used as agricultural land?

Check the land record and whether it has been converted to non-agricultural use.

🌾Yes, it is farmland🏗️No, it was converted or is a plot

General guidance, not legal or tax advice. Check your own case with a local professional.

How is a sale of urban agricultural land taxed?

Like any other land. If you held it for more than 24 months, the gain is long-term and taxed at 12.5% plus surcharge and 4% cess in FY 2026-27, without indexation for NRIs. If you held it for 24 months or less, the gain is short-term and added to your income at slab rates.

The gain is the sale price, less selling costs, less the cost of acquisition and improvements. If the sale price is below the government's circle rate, the tax law generally uses the circle-rate value as the sale price instead, so check that figure early.

What if the land was inherited?

Inheritance itself is not taxed in India. When you sell, two rules help:

• Cost: you use the previous owner's cost. If they acquired the land before 1 April 2001, you can use its fair market value on that date instead, capped at its stamp-duty value on that date.
• Holding period: the previous owner's years count as yours, so inherited land is almost always long-term.

Our capital gains on inherited property calculator works through this for you.

Which exemptions apply to agricultural land sales?

Four, depending on the land and what you do with the money. Each section was renumbered when the Income-tax Act, 2025 took effect on 1 April 2026.

Under the farmland reinvestment rule, money not reinvested by your return's due date has to go into a Capital Gains Account Scheme deposit at a bank to keep the exemption. Unused money becomes taxable when the two years end.

What should NRIs selling agricultural land know?

Three things: who you can sell to, TDS, and getting the money out. FEMA lets NRIs and OCIs inherit and own farmland but not buy it, and they can sell or gift it only to a person resident in India. Our guide on whether NRIs can buy agricultural land covers the full FEMA picture, and OCI cardholders who inherit farmland have their own guide.

TDS. A buyer paying a non-resident must deduct TDS on any sum chargeable to tax. In principle, the sale of rural agricultural land is not chargeable, so no TDS should be due. In practice, many buyers will not take that risk on your word and deduct anyway. The clean fix is a nil or lower TDS certificate from your Assessing Officer before the payment. Our guide to the lower TDS certificate (Form 13, now Form 128) explains how.

Repatriation. The buyer pays into your NRO account. From there you can generally send up to USD 1 million a financial year abroad for inherited assets and sale proceeds, after tax, with Forms 145 and 146 (formerly 15CA and 15CB).

State laws add one more layer: some states, such as Maharashtra and Gujarat, allow only agriculturists to buy farmland without permission. That narrows your pool of buyers, so check before you agree a price.

How do you prove your land is rural?

With paper, gathered before the sale. If the tax department later questions the exemption, you will need to show both that the land was agricultural and that it was outside every town's band.

• A current copy of the record of rights showing agricultural use, such as the khatauni, jamabandi or 7/12 extract
• Recent crop entries or proof of cultivation
• Census 2011 population of every town near the land
• A certificate from the tehsildar or revenue office of the straight-line distance from municipal limits, if your district issues one
• A map printout with the distance measured from the town's boundary

PlotPehra can help you keep this picture current. We watch your land from space on every clear satellite pass for crop activity, digging and new construction, and in 19 states we check the official land record every week for a new owner or mutation. A real person reviews any change and explains it. No power of attorney, ever.

This article is general information, not tax or legal advice. Figures apply to FY 2026-27 and were checked on 28 October 2026. Talk to a chartered accountant, and a local property lawyer for FEMA and state land rules, before you sell.