Statement I: In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.

Statement II: In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.

Which one of the following is correct in respect of the above statements?

(a) Both Statement I and Statement II are correct and Statement II explains Statement I

(b) Both Statement I and Statement II are correct but Statement II doesnot explain Statement I

(c) Statement I is correct but Statement II is not correct

(d) Statement I is not correct but Statement II is correct

Ans-d

Explanation

Agricultural income is exempted from tax under the Income-tax Act, 1961. It is important to note that income from allied agricultural activities like poultry farming, wool rearing, etc. are not considered as agricultural income. Hence, tax may be levied on incomes from such activities. However, many states levy a tax on agricultural income as per their respective State’s policy

Hence, statement 1 is incorrect.

Agricultural land in rural areas in India is not considered a capital asset under section 45 of the Income-tax Act,1961. Therefore any gains from its sale are not taxable under the head ‘Capital Gains’. 

Hence, statement 2 is correct.

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