My client sold ancestral farm land near a town and the Assessing Officer has charged capital gains. What are the exact population and distance limits in section 2(14)(iii), and from when is the distance measured aerially rather than by road?
Agricultural land in India is not a "capital asset" at all unless it falls inside one of the two areas described in s.2(14)(iii), so a sale of land outside them produces no capital gain to charge. Item (a) catches land within the jurisdiction of a municipality (however described) or a cantonment board having a population of not less than ten thousand. Item (b) catches land within an aerially measured distance of the local limits of such a municipality or cantonment board: not more than two kilometres where its population is more than ten thousand but not exceeding one lakh; not more than six kilometres where it is more than one lakh but not exceeding ten lakh; and not more than eight kilometres where it is more than ten lakh. Item (b) in that aerially measured form was substituted for the earlier item (b) by the Finance Act, 2013, with effect from 1 April 2014.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2014-04-01, reported as Section 2(14)(iii) of the Income-tax Act, 1961, as amended up to 2025; sub-clause (iii) in its present form substituted by the Finance Act, 2013 with effect from 1 April 2014. It bears on section 2(14)(iii), section 2(14), section 45, section 2(1A), section 10(37), section 54B, section 194-IA of the Income Tax Act 1961, in Capital Gains, Capital Gains Exemptions and How Tax Law Is Read matters.
Three things in this sub-clause decide real money and are routinely got wrong. First, the test is an EXCLUSION from the definition of capital asset, not an exemption: if the land is outside both limbs there is no capital asset, so s.45 never engages, no exemption need be claimed and no reinvestment under s.54B is needed. Second, the distance is now measured AERIALLY, and the applicable radius depends on the population of the municipality or cantonment board concerned — two, six or eight kilometres. Before the Finance Act, 2013 substitution the provision read quite differently: a single eight-kilometre limit measured from the local limits, and only "in any area within such distance ... as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette" — that is, the old test operated only where a notification had been issued, and the distance was not stated to be aerial. For transfers in a previous year relevant to assessment year 2014-15 and later the aerially measured, population-banded test applies; for earlier years the old notification-based test does. Third, "population" is defined by the Explanation as the population according to the last preceding census of which the relevant figures have been PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR — so the census figures you use are fixed by the previous year, not by the date of sale. Note finally that Explanation 1 to s.2(1A) shuts off the other route: income from the transfer of land within item (a) or item (b) is declared never to have been "revenue derived from land", so it cannot be recharacterised as agricultural income.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Sub-clause (iii) of clause (14) reads, on both departmental editions: "agricultural land in India, not being land situate— (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand ; or (b) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;". The pre-substitution item (b), as reproduced in the ITAT Bangalore order of 12 August 2026, read: "in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette".
Not a judgment. The statutory position is that agricultural land in India is excluded from the definition of "capital asset" unless it lies within item (a) or item (b) of sub-clause (iii); that the distances in item (b) are measured aerially and are banded by the population of the municipality or cantonment board concerned at two, six and eight kilometres; and that item (b) in that form was substituted for the earlier item (b) by the Finance Act, 2013 with effect from 1 April 2014.
Not a judgment; no judicial reasoning is stated. The commencement follows from the departmental footnote, which is expressed in the future tense against the pre-substitution text ("The following item (b) shall be substituted for the existing item (b) ... by the Finance Act, 2013, w.e.f. 1-4-2014"), so that the aerially measured test governs previous years beginning on and after 1 April 2013, that is assessment year 2014-15 onwards.
(b) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.
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Handle my notice → Ask a CA on WhatsAppAgricultural land in India is not a "capital asset" at all unless it falls inside one of the two areas described in s.2(14)(iii), so a sale of land outside them produces no capital gain to charge. Item (a) catches land within the jurisdiction of a municipality (however described) or a cantonment board having a population of not less than ten thousand. Item (b) catches land within an aerially measured distance of the local limits of such a municipality or cantonment board: not more than two kilometres where its population is more than ten thousand but not exceeding one lakh; not more than six kilometres where it is more than one lakh but not exceeding ten lakh; and not more than eight kilometres where it is more than ten lakh. Item (b) in that aerially measured form was substituted for the earlier item (b) by the Finance Act, 2013, with effect from 1 April 2014. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 2(14)(iii), section 2(14), section 45, section 2(1A), section 10(37), section 54B, section 194-IA of the Income Tax Act 1961. It is reported as Section 2(14)(iii) of the Income-tax Act, 1961, as amended up to 2025; sub-clause (iii) in its present form substituted by the Finance Act, 2013 with effect from 1 April 2014. Three things in this sub-clause decide real money and are routinely got wrong. First, the test is an EXCLUSION from the definition of capital asset, not an exemption: if the land is outside both limbs there is no capital asset, so s.45 never engages, no exemption need be claimed and no reinvestment under s.54B is needed. Second, the distance is now measured AERIALLY, and the applicable radius depends on the population of the municipality or cantonment board concerned — two, six or eight kilometres. Before the Finance Act, 2013 substitution the provision read quite differently: a single eight-kilometre limit measured from the local limits, and only "in any area within such distance ... as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette" — that is, the old test operated only where a notification had been issued, and the distance was not stated to be aerial. For transfers in a previous year relevant to assessment year 2014-15 and later the aerially measured, population-banded test applies; for earlier years the old notification-based test does. Third, "population" is defined by the Explanation as the population according to the last preceding census of which the relevant figures have been PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR — so the census figures you use are fixed by the previous year, not by the date of sale. Note finally that Explanation 1 to s.2(1A) shuts off the other route: income from the transfer of land within item (a) or item (b) is declared never to have been "revenue derived from land", so it cannot be recharacterised as agricultural income. If it applies to you, the first step is this: Fix the assessment year first, and then fix which version of item (b) applies. Assessment year 2014-15 onwards: aerial measurement, two/six/eight kilometres by population band. Earlier years: the pre-substitution item (b), which operated only through a Central Government notification.
Sub-clause (iii) of clause (14) reads, on both departmental editions: "agricultural land in India, not being land situate— (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand ; or (b) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;". The pre-substitution item (b), as reproduced in the ITAT Bangalore order of 12 August 2026, read: "in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette". The matter was decided on 2014-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that agricultural land in India is excluded from the definition of "capital asset" unless it lies within item (a) or item (b) of sub-clause (iii); that the distances in item (b) are measured aerially and are banded by the population of the municipality or cantonment board concerned at two, six and eight kilometres; and that item (b) in that form was substituted for the earlier item (b) by the Finance Act, 2013 with effect from 1 April 2014.
Not a judgment; no judicial reasoning is stated. The commencement follows from the departmental footnote, which is expressed in the future tense against the pre-substitution text ("The following item (b) shall be substituted for the existing item (b) ... by the Finance Act, 2013, w.e.f. 1-4-2014"), so that the aerially measured test governs previous years beginning on and after 1 April 2013, that is assessment year 2014-15 onwards. In the words reproduced by the source cited on this page: "(b) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh."
It was decided by the CBDT Circulars & Instructions on 2014-04-01 and is reported as Section 2(14)(iii) of the Income-tax Act, 1961, as amended up to 2025; sub-clause (iii) in its present form substituted by the Finance Act, 2013 with effect from 1 April 2014. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 2(14)(iii), section 2(14), section 45, section 2(1A), section 10(37), section 54B, section 194-IA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that agricultural land in India is excluded from the definition of "capital asset" unless it lies within item (a) or item (b) of sub-clause (iii); that the distances in item (b) are measured aerially and are banded by the population of the municipality or cantonment board concerned at two, six and eight kilometres; and that item (b) in that form was substituted for the earlier item (b) by the Finance Act, 2013 with effect from 1 April 2014. It arises in Capital Gains, Capital Gains Exemptions and How Tax Law Is Read matters, on section 2(14)(iii), section 2(14), section 45, section 2(1A), section 10(37), section 54B, section 194-IA of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Obtain a distance certificate from the competent revenue or municipal authority stating the distance MEASURED AERIALLY from the local limits of the named municipality or cantonment board, and a population certificate for that body. Use the census whose figures were published before the first day of the relevant previous year — the Explanation makes that the governing census, not the latest one available at the date of sale or of assessment. Plead the point as a definitional exclusion: the land is not a capital asset, so there is no charge under s.45. Do not plead it as an exemption, which invites the officer to look for conditions that do not exist. If tax was deducted at source on the sale, say expressly that deduction does not change the character of the receipt, and claim the refund.
Still good law. Two published editions print sub-clause (iii) identically, and the amending footnote naming the Finance Act, 2013 with effect from 1 April 2014 appears in identical words in three separate Tribunal orders, the most recent of 12 August 2026, which applied the aerially measured test as current law. No Finance Act text has been read and no later amendment to sub-clause (iii) was searched for. No check of judicial treatment was made beyond the three orders named. Three qualifications follow. The amending footnote is an annotation reproduced inside Tribunal orders rather than text taken from the statute book, so a reader who needs to quote the amendment should take it from the Finance Act, 2013 itself. The three orders are all at Tribunal level, so nothing here shows how the High Courts have applied the aerial-distance test, and the questions that arise in practice — what evidence establishes the population figure, from which point of the municipality the distance is measured, and who bears the burden — have not been examined. And because sub-clause (iii) fixes what is not a capital asset, an error in it does not merely change the computation but decides whether there is a charge at all; the finding should therefore be supported by a certificate of the local body, and by a measured distance placed on the record, rather than by assertion; an assessee who leaves it to the officer to measure will usually find the measurement made against him. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The current text of sub-clause (iii) was transcribed from the current published text of section 2 and again, independently, from the edition before it; the two agree word for word. The amending instrument and date come from an amendment footnote of the kind printed on annotated editions of the Act — "The following item (b) shall be substituted for the existing item (b) of sub-clause (iii) of clause (14) of section 2 by the Finance Act, 2013, w.e.f. 1-4-2014" — which I read reproduced, in identical words, inside THREE separate Tribunal orders: ACIT v. Dr. Jayesh K. Shah (ITAT Mumbai, 27 February 2019), Manoj Suresh Raste v. ITO (ITAT Pune, 4 August 2022) and Muniswamappa Ananda v. ITO (ITAT Bangalore, 12 August 2026). That footnote has not been read in an official text, the footnote block of section 2 not having been available, so it is reported here as an annotation reproduced inside those orders and not as text read from a government source. The last of those also reproduces the PRE-substitution item (b), which is quoted in the why_it_matters above. The Finance Act, 2013 itself has not been read. Note that the current published text prints sub-clause (vi) as covering "Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government", whereas the 2026 Tribunal order reproduces an older form of sub-clause (vi) without the Gold Monetisation Scheme words; the Tribunal was evidently working from an older text. That difference does not touch sub-clause (iii). The "decided_on" value of 1 April 2014 is the commencement date of the substitution of item (b) by the Finance Act, 2013, not a decision date; this is a statutory entry and there is no decision behind it. Two points of substance follow from the dating. For a transfer before 1 April 2014 the old item (b) governs, and it measured the distance by the ordinary approach road rather than aerially; much of the older case law turns on that difference and does not carry across. And the consequence of the land being outside s.2(14)(iii) is not that the gain is exempt but that there is no capital asset, so s.45 is not attracted at all. That is a different thing from the exemptions in s.10(37) and s.54B, which presuppose a capital asset and a transfer, and it is why the obligation in s.194-IA, which turns on immovable property other than agricultural land, has to be worked out on the same finding. Whether the land is agricultural at all is anterior to all of this, s.2(1A) defining agricultural income rather than agricultural land. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that agricultural land in India is excluded from the definition of "capital asset" unless it lies within item (a) or item (b) of sub-clause (iii); that the distances in item (b) are measured aerially and are banded by the population of the municipality or cantonment board concerned at two, six and eight kilometres; and that item (b) in that form was substituted for the earlier item (b) by the Finance Act, 2013 with effect from 1 April 2014.
TaxSphere, “Statutory position — s.2(14)(iii): when agricultural land is NOT a capital asset, and the aerially measured distance test substituted by the Finance Act, 2013 with effect from 1 April 2014”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-2-14-iii-when-agricultural-land-is-not-a-capital-asset-population-and-aerial-distance/ (validity last checked 2026-09-09)
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