Short answer: It depends on where the land is. Rural agricultural land is not a "capital asset" under the Income-tax Act, 2025, so selling it brings no capital gains tax and the buyer deducts no TDS. Agricultural land inside a town of 10,000 or more people, or within 2 km to 8 km of one depending on its population, is taxed like any other land: 12.5% on a long-term gain, with an indexation option for land bought before 23 July 2024.
This guide is for farmers, families who have inherited farm land, and NRIs who plan to sell agricultural land in India, especially in Tamil Nadu. It gives the section numbers of the Income-tax Act, 2025, which applies to sales from 1 April 2026, with the old 1961 Act numbers in brackets. It was checked against the Income-tax Act, 2025 and official Income Tax Department pages in October 2026. It is general information, not tax advice for your own sale.
Rural or urban: the test that decides the tax
Section 2(22) of the Income-tax Act, 2025 (section 2(14) of the 1961 Act) defines a capital asset. Its clause (iii) leaves out agricultural land in India, unless the land is in one of two areas:
- inside the limits of a municipality or cantonment board with a population of 10,000 or more; or
- within a set distance of such a municipality or cantonment board, measured aerially from its local limits, as in the table below.
| Population of the municipality or cantonment board | Land is urban if it is within |
|---|---|
| More than 10,000 and up to 1,00,000 | 2 km |
| More than 1,00,000 and up to 10,00,000 | 6 km |
| More than 10,00,000 | 8 km |
Agricultural land outside all of these areas is rural agricultural land. It is not a capital asset, so there is no capital gain to tax when you sell it. This guide calls the other kind urban agricultural land.
Three details settle most borderline cases:
- Which population counts: the population in the last census whose figures were published before the first day of the tax year. For a sale between 1 April 2026 and 31 March 2027, that is the 2011 Census. The next census, Census 2027, counts the population in February 2027.
- How distance is measured: aerially, that is in a straight line from the municipal boundary, not by road and not from the town centre.
- What counts as a municipality: the Act names a municipality, municipal corporation, notified area committee, town area committee or town committee, "or by any other name". In Tamil Nadu, look at nearby town panchayats as well as municipalities and corporations, and ask a tax professional if one of them is close to your land.
How to check whether your land is rural
- List every municipality, corporation, town panchayat and cantonment board within about 8 km of your land, not only the nearest one. A large town 5 km away can make your land urban even when a small town 3 km away does not.
- Find each one's population in the 2011 Census on the Census of India website.
- Get the town's boundary from the local body or the taluk office, and measure the straight-line distance from that boundary to your land on a map.
- Compare each result with the table above. If your land falls inside any one band, it is urban agricultural land.
- Keep the records that show the land is farm land, such as the patta, chitta and adangal (the village crop record), and save your distance measurements with them.
The capital gains rules do not define "agricultural land". If your land has been converted to non-agricultural use or laid out as plots, ask a tax professional whether it still counts, and see our guide on agricultural land conversion in Tamil Nadu.
Selling rural agricultural land
- No capital gains tax. The land is not a capital asset, so the sale does not produce a capital gain, whatever the price and however long you held it.
- No TDS. The buyer's 1% TDS under section 393(1), Table serial 3(i) (old section 194-IA) applies to immovable property other than agricultural land. For this rule, section 402 treats rural agricultural land as "agricultural land" and leaves it out of "immovable property", so the buyer deducts nothing even when the price is ₹50 lakh or more.
- Not agricultural income either. Agricultural income, defined in section 2(5) (old section 2(1A)), is rent or revenue from farm land and income from farming it, such as selling your crops. It is exempt under Schedule II, serial 1 (old section 10(1)). The price of the land itself is not agricultural income; it is outside income tax because the land is not a capital asset.
Selling urban agricultural land: how the gain is taxed
Urban agricultural land is a capital asset, and section 2(5) says that income from transferring it is not agricultural income. The gain is taxed under the head "Capital gains", the same as for any other land.
| How long you held the land | Type of gain | Tax |
|---|---|---|
| 24 months or less | Short-term capital gain | Added to your other income and taxed at your normal rates |
| More than 24 months | Long-term capital gain | 12.5% under section 197 (old section 112), plus any surcharge and cess |
The 24-month rule is in section 2(101) (old section 2(42A)).
The indexation choice. If you are a resident individual or Hindu undivided family (HUF) and you acquired the land before 23 July 2024, section 197(3) caps the tax on a long-term gain at the lower of two amounts: 12.5% of the gain without indexation, or 20% of the gain worked out with the indexed cost of acquisition (the cost adjusted for inflation using the cost inflation index). Non-residents, and land acquired on or after 23 July 2024, get the 12.5% rate only.
If you are a resident individual or HUF and your other income is below the basic exemption limit, section 197(2) lets you use the unused part of that limit against the long-term gain.
Worked examples
These examples ignore sale expenses and improvements.
Example 1: rural farm sold for ₹60 lakh. A farmer sells 3 acres for ₹60 lakh. The nearest town, of 25,000 people, is 4 km away in a straight line, and the nearest bigger town, of 1.5 lakh people, is 11 km away. The land is outside both bands, so it is rural. Capital gains tax: nil. TDS: nil, even though the price is above ₹50 lakh.
Example 2: urban plot sold for ₹80 lakh. A resident individual sells agricultural land inside municipal limits for ₹80 lakh. She bought it in 2015 for ₹30 lakh, so the gain is long-term.
| Item | Amount |
|---|---|
| Sale price | ₹80,00,000 |
| Purchase cost (2015) | ₹30,00,000 |
| Long-term capital gain | ₹50,00,000 |
| Tax at 12.5% | ₹6,25,000, plus any surcharge and cess |
| TDS by the buyer at 1% of ₹80 lakh (if the stamp duty value is not higher) | ₹80,000, credited against her tax |
Because she bought the land before 23 July 2024, she can also work out the tax at 20% on the gain using the indexed cost, and pay whichever is lower. A tax professional can do that working with the official cost inflation index.
Example 3: reinvesting in farm land. Take the same sale, and suppose she and her father farmed the land for the two years before it was sold. Within two years she buys other farm land for ₹40 lakh. Under section 83, ₹40 lakh of the ₹50 lakh gain is not taxed, and only ₹10 lakh is taxed (₹1,25,000 at 12.5%, plus any surcharge and cess). If she sells the new land within three years of buying it, its cost is taken as nil when that later gain is worked out.
Reinvesting in farm land: section 83 (old section 54B)
Section 83 lets an individual or HUF avoid tax on the gain from urban agricultural land by buying other agricultural land. It covers both short-term and long-term gains. The conditions are:
- the land sold was used for agricultural purposes by you, your parent or the HUF in the two years immediately before the sale;
- you buy other land, to be used for agriculture, within two years after the sale;
- if the new land costs as much as the gain or more, none of the gain is taxed; if it costs less, only the difference is taxed;
- if you sell the new land within three years of buying it, its cost is reduced by the gain that was not taxed, or taken as nil if that gain was larger than the cost;
- if you have not bought the new land by the time you file your return, deposit the unused amount with a specified bank or institution under the scheme notified by the Central Government (under the 1961 Act, the Capital Gains Account Scheme), before the return due date, and submit proof with the return;
- any part of that deposit not used within two years of the sale is taxed in the tax year in which the two years end.
Two other routes can reduce the tax on a long-term gain from urban land:
- Bonds, section 85 (old section 54EC): invest the gain within six months of the sale in long-term specified bonds, such as those of the National Highways Authority of India or the Rural Electrification Corporation, up to ₹50 lakh, and do not sell them for five years.
- A house, section 86 (old section 54F): an individual or HUF who buys one residential house in India within one year before or two years after the sale, or builds one within three years, saves tax in proportion to the sale money invested. It does not apply if you own more than one other house on the date of the sale, and other conditions apply.
When the government acquires your farm land
- Rural agricultural land: it is not a capital asset, so the compensation is not taxed as a capital gain.
- Urban agricultural land: Schedule III, serial 18 (old section 10(37)) exempts the gain for an individual or HUF when the land was used for agriculture by the family or a parent in the two years before the transfer, the transfer is a compulsory acquisition under any law (or a transfer at a price fixed or approved by the Central Government or the RBI), and the compensation was received on or after 1 April 2004.
- Awards under the 2013 land acquisition law: section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 exempts its awards and agreements from income tax. Schedule III, serial 38C of the 2025 Act excludes this income for individuals and HUFs, for any land, except acquisitions under section 46 of the 2013 Act.
- TDS: the 10% TDS on compulsory acquisition compensation above ₹5 lakh, under section 393(1), Table serial 3(iii) (old section 194LA), does not apply to agricultural land, rural or urban. Section 393(4) also says no tax is deducted from an award exempt under section 96 of the 2013 Act.
TDS: what the buyer must deduct
| Seller and land | TDS by the buyer |
|---|---|
| Resident seller, rural agricultural land | None, at any price |
| Resident seller, urban agricultural land, price or stamp duty value ₹50 lakh or more | 1% of the price or the stamp duty value, whichever is higher (section 393(1), Table serial 3(i)) |
| Resident seller, urban agricultural land, both below ₹50 lakh | None |
| Non-resident seller, urban agricultural land | Tax at the rates in force on the sum chargeable to tax (section 393(2), Table serial 17, old section 195) |
The ₹50 lakh limit is checked on the total paid by all the buyers for the property. Give the buyer your PAN, and check that the deduction appears against your PAN before you file your return.
If you are an NRI selling farm land
- The rural or urban test is the same for residents and non-residents.
- For urban agricultural land, the buyer deducts TDS under section 393(2), Table serial 17, at the rates in force, not at the 1% rate for residents. That rule covers sums chargeable to tax, and a gain on rural agricultural land is not chargeable; confirm your case with a tax professional before the registration.
- The indexation choice in section 197(3) is for residents only, so a non-resident pays 12.5% on a long-term gain from urban land.
- Under the RBI's rules, an NRI or OCI cardholder who owns agricultural land, for example through inheritance, can transfer it only to a person resident in India. The RBI's route for sending sale money abroad covers property other than agricultural land, plantation property or a farm house, so plan how you will move the money before you sell.
For the full process, read how to sell property in India from abroad.
Where to show the sale in your income tax return
- Rural agricultural land: no tax is due on it. The ITR-2 form for assessment year 2026-27 (sales from 1 April 2025 to 31 March 2026) has an exempt income schedule, Schedule EI. Its "Others" entry includes the option "Receipts not in the nature of income", where such an amount can be disclosed.
- Urban agricultural land: report the gain in the capital gains schedule, Schedule CG.
- Compensation exempt under the old section 10(37): Schedule EI has a separate option for capital gains on the compulsory acquisition of urban agricultural land.
- Sales from 1 April 2026: these fall in the tax year 2026-27 under the new Act, and are reported in 2027 on the forms notified for that year.
GST and stamp duty
There is no GST on the sale of land. Schedule III of the Central Goods and Services Tax Act, 2017 lists "sale of land" among the transactions that are neither a supply of goods nor a supply of services.
Stamp duty and registration fees are separate from income tax: the state charges them when the sale deed is registered. Work out the amount with our Tamil Nadu stamp duty and registration charges calculator, and see how to find the guideline value of your land.
Old and new section numbers
Most websites still quote the 1961 Act. The rules carry over into the 2025 Act under new numbers:
| Rule | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Rural agricultural land is not a capital asset | Section 2(14)(iii) | Section 2(22)(iii) |
| Meaning of agricultural income | Section 2(1A) | Section 2(5) |
| Agricultural income is exempt | Section 10(1) | Schedule II, serial 1 |
| Long-term after 24 months | Section 2(42A) | Section 2(101) |
| Tax on long-term capital gains | Section 112 | Section 197 |
| Rollover into new agricultural land | Section 54B | Section 83 |
| Rollover into bonds | Section 54EC | Section 85 |
| Rollover into a house | Section 54F | Section 86 |
| Compulsory acquisition of urban agricultural land | Section 10(37) | Schedule III, serial 18 |
| TDS on property bought from a resident | Section 194-IA | Section 393(1), Table serial 3(i) |
| TDS on compulsory acquisition compensation | Section 194LA | Section 393(1), Table serial 3(iii) |
| TDS on payments to a non-resident | Section 195 | Section 393(2), Table serial 17 |
The department's comparison utility shows the new number for any old section.
Selling farm land with Gmore
Gmore films your land professionally, including the boundary, the road and the water source, lists it with the video and alerts buyers searching nearby. Buyers call you directly. You pay one flat fee, shown before you pay, and zero commission, so the full sale price stays with you. Sell your farm land with Gmore, or, for land in Tamil Nadu, sell land anywhere in Tamil Nadu.
