Agricultural land lies 4 km (measured aerially) outside the limits of a municipality whose population per the last published census is 3,00,000. For capital gains purposes the land is:
AA capital asset, as land up to 6 km away is urban when population exceeds 1,00,000
BNot a capital asset, since only land within 2 km of municipal limits can be urban
CNot a capital asset, since the population does not exceed 10,00,000
DA capital asset, because all agricultural land is chargeable to capital gains
Answer & Solution
Correct answer: A. A capital asset, as land up to 6 km away is urban when population exceeds 1,00,000
1. Section 2(14) treats agricultural land as a capital asset when it lies within notified aerial distances of a municipality: up to 2 km (population > 10,000), up to 6 km (population > 1,00,000) or up to 8 km (population > 10,00,000).
2. Population here is 3,00,000, which exceeds 1,00,000, so the relevant belt extends to 6 km.
3. The land at 4 km falls inside that belt and is urban agricultural land — a capital asset.
4. Option B fails because the 2-km belt applies to the smallest population band, not universally; option C quotes the threshold for the 8-km belt; option D ignores the rural-land exclusion altogether.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 8_
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