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 ✓ UPSC's answer
Why the answer is (d)
• Statement I is not correct: only 'agricultural income' as defined in Section 2(1A) of the Income-tax Act — income from land used for cultivation — is exempt under Section 10(1); income from poultry farming, dairying, wool rearing and similar allied activities does not involve cultivating land and is fully taxable as business income.
• Statement II is correct: under Section 2(14), rural agricultural land (land outside municipal limits and beyond specified distances from towns) is excluded from the definition of 'capital asset', so gains on its sale are not chargeable to capital gains tax.
• The two provisions are separate: II concerns capital gains on land, not the taxability of allied-activity income.
• Hence Statement I is not correct but Statement II is correct, option (d).
Why the other options are wrong
- (a) Both Statement I and Statement II are correct and Statement II explains Statement I
- Statement I is wrong: allied activities such as poultry are taxable.
- (b) Both Statement I and Statement II are correct but Statement II does not explain Statement…
- Statement I is wrong, so both cannot be correct.
- (c) Statement I is correct but Statement II is not correct
- It is Statement I that is wrong and Statement II that is right, not the reverse.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2025, held on 25 May 2025. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.