Agricultural income definition may change

If you own agricultural land, located less than 16 km from the municipal limits, your income could soon no longer qualify as agricultural and be tax-free.

The finance ministry is considering making changes in the prescribed distance from the municipal limits for defining agricultural land and agricultural income.

The ministry is mulling doubling the prescribed distance from the municipal limits to 16 km from the 8 km at present, for defining agricultural land and agricultural income.

Officials said the revenue department was considering revising the norms in view of the rapid urbanisation of sub-urban areas and satellite towns.

The proposal would require amendments to Section 2(14) and Section 2(IA) of the Finance Act. "The issue was discussed at the income tax chief commissioners' meeting earlier this year. It was felt that there was a need to revise the limits as satellite towns had brought municipal limits closer to the earlier designated agricultural areas," an official said.

Tax experts contend that revising the norms would have triple implications. Owners of agricultural land located at less than 16 km from the municipal limits would have to pay capital gains tax on the sale of such land as it would be treated as a capital asset and not agricultural land.

Also, income from such land would attract income tax. Thirdly, such land could also attract wealth tax since urban land is liable to the tax.

"The amendments should not be made applicable to the whole country. The amendments should be applicable only to selected regions based on the level of urbanisation. In small towns, even 8 km is sufficient distance for agricultural land. The change could adversely impact farmers in such towns," Ravi Prakash, principal consultant, PricewaterhouseCoopers said.

The revenue department is also examining a proposal to tighten the definition of "education" for the purpose of granting tax benefits.

Officials said the department had received representations from field formations not to treat "providing education" as a charitable activity since there was a view that education in several private institutions was imparted in a business-like manner.

The proposal, if accepted, would also require an amendment to the Finance Act.

The revenue department is also considering a proposal to withdraw the powers of a chartered accountant to grant a certificate to a non-resident for exemption from tax deducted at source.

Officials said several field formations had highlighted the difficulty in cross- verifying such certificates issued by the chartered accountants.