It depends on where the field is and what it was. Section 2(14)(iii) keeps agricultural land in India out of the definition of capital asset unless it sits inside a municipality or cantonment board with a population of at least ten thousand, or within two, six or eight kilometres of one depending on that body's population. If the land is outside those lines and is agricultural in character, there is no capital asset, s.45 never engages, and s.50C has nothing to operate on.
Capital gains are charged under s.45 on the transfer of a capital asset. If the thing sold is not a capital asset there is no charge at all, and that is the whole of the point on rural agricultural land - it is not an exemption, and it is not a deduction. It is an exclusion from the definition.
Section 2(14)(iii) excludes "agricultural land in India, not being land situate—" and then sets out two limbs. The first, item (a), is land "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". Read the words "within the jurisdiction of a municipality" carefully: they are what decides which local body counts, and the bracket lists the names a municipality may go by rather than adding new kinds of authority to the test.
The second limb, item (b), is the distance test, and it is a sliding scale keyed to the population of the local body, not a flat eight kilometres. It is land "in any area within the distance, measured aerially,—" and then: "(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". So the eight-kilometre figure that everyone quotes applies only where the municipality has more than ten lakh people; for a small town the band is two kilometres.
Population is not today's population. The Explanation to the clause provides that "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". That is a fixed, checkable figure for the year of transfer, and it is the first thing to pin down, because it selects which of the three distance bands you are in.
The measurement rule changed. The aerial-distance wording was introduced by the Finance Act 2013 and applies from assessment year 2014-15. For earlier years the Bombay High Court at Nagpur held that the distance is measured by the shortest road distance, and the CBDT accepted that. Circular No. 17/2015 dated 6 October 2015, F. No. 279/Misc./140/2015-ITJ, records that "the amendment prescribing distance to be measured aerially, applies prospectively i.e. in relation to assessment year 2014-15 and subsequent assessment year" and that for earlier periods the distance "is to be measured having regard to the shortest road distance", and directs that "no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn". That still matters, because reassessments and appeals for pre-2014-15 years continue to surface. The Surat Tribunal applied exactly that rule in Kanchanben Maheshbhai Patel v. ITO (2025) 212 ITD 133 (Surat)(Trib.), where a certificate from the Deputy Executive Engineer (Road and Building) put the land 8.5 kilometres from the municipal limit by road for assessment year 2012-13, so it was not a capital asset and s.50C did not apply.
The second question is the one that loses cases. Distance is only half of it: the land must be agricultural land to begin with, and that is a question of fact judged at the date of sale on all the material, not on the revenue record alone. In Girdhari Lal v. ITO (2018) 171 ITD 176 (Delhi)(Trib.) the assessee failed on this limb - no crop grown in the years before sale, no agricultural income returned, and a sale deed that described the property as residential land with constructed structures on it. That decision is not a clean illustration of the character limb alone, though: the Tribunal also relied on the land lying within eight kilometres of municipal limits, so it decided the case on both limbs. Pulling the other way, the Mumbai Tribunal in ACIT v. Ashok W. Wesavkar (ITA No. 5147/Mum/2017, order of 21 May 2023, third member) took the view that s.2(14)(iii) prescribes no condition that active agricultural activity be going on at the time of sale, where the revenue record showed cultivable land and vegetables and minor millets had been grown. The two are reconcilable on their facts, but they show where the fight is.
On the department's side of the distance test, note who the local body is. In Dashratbhai Gopalbhai Patel v. ITO (I.T.A. No. 1356/Ahd/2017, order of 31 August 2021) the Ahmedabad Tribunal held the land fell outside s.2(14) where it was some five kilometres from the Gandhinagar Municipal Corporation, on the footing that a development authority is not a municipality for this purpose - which is the work done by the words "within the jurisdiction of a municipality" in item (a). In Dy. CIT v. Ravjibhai Manibhai Patel (IT(SS)A Nos. 132 and 133/Ahd/2018, order of 8 January 2020) the same bench accepted that land beyond eight kilometres of a municipal area whose population exceeded ten lakh was not a capital asset, with the consequence that s.50C could not be applied to it either.
That consequence is worth stating on its own. Section 50C substitutes the stamp duty value as the full value of consideration in computing capital gains. If the land is not a capital asset there are no capital gains to compute, so the substitution has nothing to attach to. The same logic runs through s.56(2)(x) on the buyer's side, which the corpus covers at clayking-minerals-v-ito-agricultural-land-56-2-x.
Finally, the sequencing. If the land is rural agricultural land under s.2(14)(iii), you never reach s.54B, s.10(37) or s.54F, because those relieve a charge that has not arisen. Claiming s.54B on land that was outside s.2(14) in the first place is an admission you do not need to make.
This is a single-issue notice that individuals receive constantly, usually generated by an AIR or SFT match between a registered sale deed and a return showing no capital gain. The answer is binary and it is decided on two documents - a population figure from the last published census and a distance certificate - plus evidence that the land was actually being farmed. Getting the sequence right also stops you conceding the charge by arguing exemptions you do not need.
The Assessing Officer wants to tax what my client received on redemption of stock appreciation rights granted by the foreign parent as a perquisite. Is there Supreme Court authority on this?
I handed over possession of my factory and the buyer credited me with the price, but the sale deed came much later. In which year did I make the capital gain?
The company redeemed my preference shares and paid me the face value. Is that a transfer, or just a repayment?
My land was notified and an award was made under the Land Acquisition Act, but I thought the award was too low, negotiated a higher figure and executed a sale deed. The Assessing Officer now says that was a voluntary sale and denies s.10(37). Is he right?
I sold my firm's business to a company as a going concern for one lump sum. Is the surplus on plant and machinery still taxable as a balancing charge?
My mortgaged property was auctioned and the department kept what I owed it out of the proceeds. Do I pay capital gains on the whole price or only on what reached me?
We sold the goodwill our own firm built up over the years. It cost us nothing to acquire. Is the price taxable as a capital gain?
I held shares as an investment for years and then started dealing in them. When I sell, is my profit measured from what I originally paid or from the market value on the day I began trading?
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