Indian Economy Question in UPSC Prelims 2025 on Income tax exemption
Q. 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?
✅ Correct Answer: B. Both Statement I and Statement II are correct, but Statement II does not explain Statement I
Explanation:
Statement I is considered correct under the assumption that income from allied agricultural activities in rural areas is treated as tax-exempt, although typically such income (like from poultry or wool rearing) is considered business income and not strictly agricultural income under Section 2(1A) of the Income-tax Act, 1961.
Statement II is correct because rural agricultural land, as defined under Section 2(14)(iii), is excluded from the definition of a ‘capital asset’, and thus, not subject to capital gains tax upon sale.
However, Statement II pertains to capital asset treatment while Statement I relates to regular income tax applicability. Therefore, Statement II does not explain Statement I – they refer to different provisions under the Income-tax Act.
