Q. Consider the following statements:
Statement 1: 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?
Exp) Option d is the correct answer.
Statement I is incorrect: Under Section 10(1) of the Income Tax Act, 1961, agricultural income is exempt from tax. This includes income from cultivating and selling agricultural produce, sale of agricultural land, and compensation received from the government for acquisition of agricultural land. However, income from allied agricultural activities—such as dairy farming, poultry, or fisheries—is not treated as agricultural income under the Act and is subject to tax by the central government.
Statement II is correct: According to Section 2(1A) of the Income Tax Act, rural agricultural land is not classified as a capital asset. As a result, any rental income from such land or income earned from growing and selling produce on it is not taxable.
Hence option d is the correct answer: Statement I is not correct but Statement II is correct
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