UPSC CSE 2025 · PYQ · Taxation / Income Tax · hard
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?
A.Both Statement I and Statement II are correct and Statement II explains Statement I
B.Both Statement I and Statement II are correct but Statement II does not explain Statement I
C.Statement I is correct but Statement II is not correct
D.Statement I is not correct but Statement II is correct✓ Correct
Explanation
Statement I is incorrect because income from allied agricultural activities such as poultry farming, dairy farming, and wool rearing is NOT exempt from income tax — only income from actual agricultural operations (cultivation of land) is exempt under Section 10(1) of the Income-tax Act, 1961. Allied activities are considered business income and are taxable. Statement II is correct because rural agricultural land in India is specifically excluded from the definition of 'capital asset' under Section 2(14) of the Income-tax Act, 1961, provided it meets the distance criteria from a municipality. Hence, only Statement II is correct.
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