Investing in agricultural land in India can be a lucrative opportunity, but the legal requirements vary significantly across states. Here’s a detailed overview of the eligibility criteria and regulations for non-farmers looking to purchase agricultural land in different Indian states.
State-wise Legal Requirements
Tamil Nadu: There are no restrictions on who can purchase agricultural land. However, the maximum limit for a single buyer is 59.95 acres. If the land has not been used for agricultural purposes in the last ten years, it can be converted to non-agricultural use with the approval of the district collector.
Karnataka: Non-farmers can buy agricultural land if their annual income does not exceed ₹25 lakh. They must obtain prior approval from the Deputy Commissioner and are required to commence agricultural activities within a year of purchase. Failure to do so may result in the confiscation of the land by the state government.
Kerala: Any individual, except for NRIs, can purchase agricultural land. The ceiling limits vary: 7.5 acres for unmarried adults, 15 acres for families of 2-5 members, and 20 acres for larger families.
Maharashtra: Only individuals recognized as farmers can purchase agricultural land. However, if a buyer can prove that they have a farmer in their ancestry, they may also qualify. The maximum limit is 54 acres.
Gujarat: Similar to Maharashtra, only agriculturists can purchase agricultural land. However, the Gujarat High Court has allowed any farmer from across India to buy land in the state.
Rajasthan: Non-agriculturists can buy agricultural land, but they must apply for conversion to non-agricultural use within a year and begin the intended use within three years.
Madhya Pradesh: There are no restrictions for non-farmers, but they must inform the authorities within 90 days of purchasing agricultural land.
Haryana: Non-agriculturists can buy land, but they must obtain a change of land-use certificate for non-agricultural purposes.
Himachal Pradesh: Only local agriculturists can purchase agricultural land. Outsiders need prior permission from the government, and there is a ceiling limit of 32 acres.
Punjab: The land ceiling limits are 17.5 acres for irrigated land and 52 acres for wasteland. Non-agriculturists can purchase land for non-agricultural use after informing the collector.
Tax Benefits of Investing in Agricultural Land in India
Investing in agricultural land in India comes with several tax benefits, making it an attractive option for investors:
Exemption from Capital Gains Tax: Agricultural land in rural areas is not considered a capital asset, which means that any income earned from it is exempt from capital gains tax. This applies to profits from selling the land as well.
No TDS on Sale: When selling agricultural land, no Tax Deducted at Source (TDS) is applicable, which is an added financial advantage for sellers.
Long-Term Capital Gains: If the agricultural land is classified as urban agricultural land, any gains from its sale may be subject to capital gains tax. However, if the land is held for more than two years, it qualifies for long-term capital gains tax at a reduced rate of 20%.
Compulsory Acquisition Benefits: Under Section 10(37) of the Income Tax Act, capital gains from the compulsory acquisition of urban agricultural land can be exempted if certain conditions are met, such as the land being used for agricultural purposes prior to acquisition.
Comparing ROI of Agricultural Land to Urban Properties in India
The return on investment (ROI) for agricultural land often compares favorably to urban properties, although several factors influence this comparison:
Price Appreciation: Agricultural land typically appreciates at a steady rate, especially in rural areas where urbanization is expanding. In contrast, urban properties can experience volatile price fluctuations due to market demand and economic conditions.
Lower Initial Investment: The cost of agricultural land is generally lower than urban properties, making it more accessible for investors. For example, agricultural land can be purchased for ₹1-8 lakhs per acre, while urban properties can range from ₹8 lakhs to several crores, depending on the location.
Income Generation: Agricultural land can generate income through farming activities, leasing, or agro-tourism, providing a steady cash flow. Urban properties primarily generate income through rentals, which can be subject to market fluctuations.
Long-Term Stability: Agricultural land investments tend to be more stable over the long term, especially as food demand increases. Urban properties, while potentially offering higher short-term returns, can be more susceptible to economic downturns.
Conclusion
Understanding the legal requirements, tax benefits, and ROI potential of agricultural land is crucial for non-farmers considering investment in this sector in India. While the regulations vary by state, the overall advantages of investing in agricultural land can lead to significant financial gains and diversification of investment portfolios. As urbanization continues to expand, agricultural land remains a viable and often lucrative investment opportunity.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial professional before making any investment decisions. The content of the above article is based on references, learnings and interpretations. Invest Corners does not guarantee the accuracy of the information provided.
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