By signing in you confirm you are 18 or older, or have your parent’s or guardian’s consent.

UPSC Prelims 2025 GS Paper 1, question 5

Topic: Economy

Q5

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?

  1. (a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  2. (b) Both Statement-I and Statement-II are correct but Statement-II does not explain Statement-I
  3. (c) Statement-I is correct but Statement-II is not correct
  4. (d) Statement-I is not correct but Statement-II is correctCorrect answer

Solution.

Answer: (d) Statement-I is not correct but Statement-II is correct

  1. Statement-I is incorrect: under Section 2(1A) and Section 10(1) of the Income-tax Act, 1961, exemption for agricultural income applies strictly to land cultivation and direct agrarian operations; income from allied activities such as poultry farming, dairy farming, and livestock/wool rearing is not agricultural income and is taxable.
  2. Statement-II is correct: under Section 2(14)(iii) of the Income-tax Act, 1961, agricultural land situated in rural areas of India is excluded from the definition of a 'capital asset' (and is therefore exempt from capital gains tax on transfer).