Agri-land isn’t a tax shelter anymore if you fudge the numbers.
How the Farmland Loophole for Black Money Got Slammed Shut
🧩 Q1: What was the so-called “farmland scam” all about?
For years, individuals in India used a legal loophole to turn unaccounted cash (black money) into clean, taxable income (white money).
Here’s the basic trick:
- Buy rural agricultural land.
- Show a low official price in the sale deed.
- Pay the balance in cash.
- Later, sell the land at full market value via bank transfer.
💰 No capital gains tax on rural agri-land meant the black money just got laundered.
🧪 Q2: Can you give a simple example?
Absolutely!
🧍♂️ Let’s say Ramesh has ₹5 crore in Cash.
He buys land worth ₹7 crore from a farmer but officially declares only ₹2 crore.
The remaining ₹5.crore is paid in cash.
📅 A few years later, Ramesh sells that land for ₹7 crore—this time using a clean bank transfer.
💼 Since it’s rural agri-land, he pays no capital gains tax.
Result? That ₹5. crore of dirty money has now been “washed” and banked.
⚖️ Q3: What changed in the ITAT ruling?
On 27 May 2025, the Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) pulled the brakes.
It ruled that if a buyer understates the purchase value of land compared to market price, the difference will now be taxed as “Income from Other Sources” under Section 56(2)(x)—even if the land is rural and agricultural!
🚨 Q4: Wait—wasn’t agri-land always exempt?
Yes! Rural agricultural land was:
- ✅ Not a capital asset
- ✅ Exempt from capital gains tax
But… 👇
The exemption only applied to sale profits.
Now, it’s the purchase stage that’s under fire—especially if the deal smells of undervaluation.
🔍 Q5: So, what’s the real impact of this ruling?
👉 Before: The scammer could clean black money by buying cheap “on paper” and selling high later—no tax.
👉 Now: The difference between the market price and declared price is treated as taxable income immediately.
This kills the core strategy of laundering.
📌 Example That Bites:
Let’s say Seema buys rural agri-land:
- Declared price: ₹2 crore
- Market value: ₹6 crore
💣 Under the new ruling, that ₹4 crore difference is taxed as income right now—even if the land is never resold.
📘 Q6: What does “Income from Other Sources” mean here?
It’s the I-T Act’s “catch-all” bucket 🪣.
If any income doesn’t fit into salary, business, capital gains, etc.—it lands here.
So now, under-declared land purchase amounts are treated as just that: extra income for the buyer.
🤔 Q7: Does this mean selling agri-land is now taxable?
🟢 No—selling rural agricultural land is still exempt from capital gains tax.
But that’s not the issue anymore.
🔴 The problem is how you bought it. If the purchase is undervalued on paper, you pay tax upfront.
🏛️ Q8: What if the ITAT ruling is upheld by higher courts?
If the ruling stands:
- ✅ The “farm flip” scam dies.
- ✅ Black money conversion through agri-deals becomes high-risk and expensive.
- ✅ More tax revenue for the government.
- ✅ Cleaner land transactions in the long run.
🧠 Key Insights:
🔸 Agri-land isn’t a tax shelter anymore if you fudge the numbers.
🔸 Section 56(2)(x) is now the watchdog on suspicious undervalued property deals.
🔸 Buyers, not just sellers, need to worry now.
📞 For smart, compliant real estate tax planning:
👉 Contact: CA Bhavesh Panpaliya
📱 8888755557