Consider the following statements: Statement I: Income from agricultural activities in cities like poultry, allied 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 does not 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
▶ Answer & Explanation
Correct answer: D. Statement I is not correct but Statement II is correct
Income derived from agricultural operations on agricultural land, including poultry farming and wool rearing, is generally exempt from income tax in India. However, this exemption is for income from agriculture itself, not necessarily all activities conducted in rural areas or income from the sale of capital assets. Rural agricultural land is indeed not considered a capital asset for the purpose of capital gains tax under the Income Tax Act, 1961, meaning gains from its sale are not taxed. Therefore, Statement I is too broad and potentially incorrect as 'any tax' might be misleading, while Statement II accurately reflects a provision of the Income Tax Act.
Source: UPSC gs1 2025