Selling agricultural land remains tax-free. But there is a catch

livemint.com:

Agricultural income is tax-free, and selling farmland can be, too—but only if it qualifies as rural agricultural land. 

So, what exactly makes land ‘rural’ in the eyes of the taxman? The answer lies in a set of specific conditions that could mean the difference between zero tax and a hefty capital gains bill.

To be considered rural agricultural land, the property must not be located within the limits of a municipal or cantonment board that has a population of 10,000 or more, according to the last census. Remember, the last country-wide census was done only in 2011. The 10-year census that was due in 2021 was suspended due to the covid-19 pandemic.

Also read: No tax on income up to ₹12 lakh. Are NRIs eligible?

If the population of the municipal or cantonment board is more than 10,000 but less than 1 lakh, then the land needs to be 2 km further away from its limits, to qualify as rural agricultural land.

Distance is measured as a straight path, starting from the limits of the municipal or cantonment board. The typical road distance is not considered as roads may not necessarily fall on a straight path and if the road connectivity is poor, land may inadvertently fall within the distance threshold and qualify as rural agricultural land.

If the population of a municipality or cantonment board is more than 1 lakh, but less than 10 lakh, the distance threshold increases to 6 km. The land should be further 6 km away from the limits of the municipal or cantonment board to quality as rural agricultural land.

If the population of a municipality or cantonment board is more than 10 lakh, the land should be further 8 km away from its limits, to quality as rural agricultural land.

If it is an urban agricultural land, capital gains tax