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Is my agricultural land a capital asset? Rural vs urban land checker

Rural agricultural land in India is not a “capital asset”, so selling it attracts no capital gains tax at all. It counts as urban — and taxable — if it lies inside a town of 10,000+ people, or within 2, 6 or 8 km (in a straight line) of a bigger town. Answer up to six quick questions to see which side your land falls on.

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1-minute check

Is your farmland a capital asset?

Q1
Is it agricultural land — recorded and used as farmland?

Look at the land record (jamabandi, khatauni, 7/12, patta). Land converted to non-agricultural (NA) use, or sold as a plot, is not agricultural land.

General information, not tax advice. Based on the agricultural-land exclusion in the definition of “capital asset” — section 2(14)(iii) of the Income-tax Act, 1961, carried into section 2(22) of the Income-tax Act, 2025 from 1 April 2026. Borderline cases turn on exact distances, records and actual farming use, so confirm with a chartered accountant before you sell.

How to use it

  1. Keep your land record handy and know roughly where the land is on a map.
  2. Answer one question at a time: is it farmland, is it inside a town, and how far is it from nearby towns of different sizes.
  3. Read the verdict and what it means for tax, TDS and exemptions when you sell.
  4. Tap any earlier answer to change it, and confirm borderline cases with a chartered accountant.

When is agricultural land not a capital asset?

The definition of “capital asset” leaves out agricultural land in India unless it is in or near a town. This was section 2(14)(iii) of the Income-tax Act, 1961. From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act, and the same exclusion now sits in the definition of capital asset in section 2(22) of the new Act.

Land is urban — and therefore a capital asset — if it is inside a municipality or cantonment board with a population of 10,000 or more, or within these straight-line distances from the local limits of one: up to 2 km if the town has more than 10,000 and up to 1 lakh people; up to 6 km if it has more than 1 lakh and up to 10 lakh; up to 8 km if it has more than 10 lakh. Everything else is rural agricultural land.

How do you measure the distance — by road or straight line?

In a straight line. Since 2013 the law says the distance is measured aerially, so a village 9 km away by road can still be 7 km away as the crow flies. Measure from the town’s municipal or cantonment boundary, not from the city centre or the bus stand.

Check every town around the land, not only the nearest. Example: farmland 5 km from a small nagar panchayat of 15,000 people clears the 2 km band — but if it is also 7 km from the limits of a city of 12 lakh, it falls inside that city’s 8 km band and is a capital asset.

Which census population counts?

The population is taken from the last census whose figures were published before the start of the tax year. Census 2027 is under way — house-listing ran from April to September 2026 and the population count is due in February 2027 — so for sales today the figures that count are still from Census 2011.

Municipal limits do change, though. A village merged into a municipal corporation in 2024 is inside that corporation’s limits today, even though the population used is the 2011 figure for the corporation.

What if my land is urban agricultural land?

Then the sale is taxed like any other land. Held more than 24 months — and for inherited land the previous owner’s years count — the gain is long-term and taxed at 12.5% plus surcharge and cess; otherwise at your slab rate.

Two reliefs are worth knowing. Reinvest the gain in other agricultural land within 2 years and it can be exempt, if you or your parents farmed the land for the 2 years before the sale (old section 54B, now section 83 of the 2025 Act). And if the government compulsorily acquires urban agricultural land that was farmed for the 2 years before, the compensation can be fully exempt for individuals and HUFs — the old section 10(37) exemption, carried into the new Act’s schedule of exempt income.

What should NRIs selling inherited farmland know?

NRIs can inherit agricultural land but, under FEMA, can usually sell it only to an Indian citizen living in India. The buyer must deduct TDS on payments to a non-resident, so even for rural land — where there is no capital gain — it helps to get a nil or lower deduction certificate from the tax department before the sale, instead of waiting for a refund.

Keep proof of the land’s status: the land record showing agricultural use, the Census 2011 population of the nearby towns and, ideally, a tehsildar’s or revenue officer’s certificate of distance from municipal limits. The money can then go to your NRO account and be sent abroad under the USD 1 million a year limit.

Questions people ask

Only if it is urban. Rural agricultural land is excluded from the definition of capital asset — section 2(14)(iii) of the 1961 Act, now section 2(22) of the Income-tax Act, 2025 — so its sale is not taxed as capital gains. Land inside or near a town of more than 10,000 people is a capital asset.

No capital gains tax is payable, because rural agricultural land is not a capital asset. You should still show the sale as exempt in your Indian tax return. If you are a dealer in land, the rules for business income may apply instead.

Agricultural land is urban if it lies within 2 km of a municipality or cantonment of more than 10,000 and up to 1 lakh people, within 6 km of one with more than 1 lakh and up to 10 lakh, or within 8 km of one with more than 10 lakh. Distances are measured in a straight line from the town’s limits.

Not on rural agricultural land, which isn’t a capital asset. On urban agricultural land, NRIs pay capital gains tax like residents, and the buyer deducts TDS from the price. A lower or nil TDS certificate can stop too much tax being withheld.

Compensation for compulsory acquisition of urban agricultural land is exempt for individuals and HUFs if the land was used for farming by them or their parents for 2 years before the acquisition — the old section 10(37) exemption, continued under the Income-tax Act, 2025. Rural agricultural land isn’t a capital asset in the first place.

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