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?

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

Only income from land used for agriculture is exempt; poultry, dairy and wool rearing are taxed. Rural agricultural land is outside “capital asset”, so its sale has no capital-gains tax.

The idea

Agricultural income (Section 10(1)) = rent or revenue from land used for agriculture, and income from cultivating it. Allied activities — poultry, dairy, fisheries, sheep rearing — are business income, and taxable.

Why the others are wrong

(a) Statement I is wrong — poultry and wool income are taxable.

(c) Accepts I and rejects II — backwards. Only income from farmland is exempt, and rural farmland is outside “capital asset”.

The trap

“Rural” and “agricultural” feel like the same thing. The exemption covers only income from farming LAND, not every rural livelihood.