Consider the following statements: 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?
Explanation:
Statement I: Income from allied agricultural activities such as poultry farming, dairy farming, mushroom cultivation, and wool rearing is generally treated as business income and is taxable under the Income-tax Act, 1961. Only income directly derived from agricultural operations on land (like cultivation) is exempt. So, Statement I is incorrect. Statement II: Under the Income-tax Act, 1961, agricultural land situated in a rural area (outside specified municipal limits and population criteria) is not considered a capital asset. Therefore, any gain from its sale is not subject to capital gains tax. So, Statement II is correct.