Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Rural land is outside the tax net
Rural agricultural land — land outside the specified distance from municipal limits — is not a ‘capital asset’ under the Income-tax Act. So selling it produces no capital gain, there is no tax, and no TDS applies. This is a genuine exemption, not just a deferral.
Urban agricultural land is taxable
Urban agricultural land — within the notified municipal limits/distances — is a capital asset. Its sale gives a taxable capital gain, and the buyer must deduct Section 195 TDS just like any other property. Whether land is ‘rural’ turns on population and distance tests — confirm the classification for your plot.
A practical caution — an example
Example: an NRI selling ancestral rural farmland pays no tax and faces no TDS; selling a plot just inside city limits is fully taxable with TDS on the sale value. Note too that an NRI generally cannot purchase agricultural land — you can usually only inherit it — so most NRI agricultural-land sales involve inherited plots. Our NRI property service can confirm the position and handle the sale.