When it comes to real estate investment in India, taxation plays a crucial role in determining long-term profitability. Two of the most popular property types investors consider are farmland and commercial shops. Both offer different advantages, but when it comes to tax savings, the differences are significant.
In emerging destinations like Naugaon, Alwar, Rajasthan, farmland is gaining traction among investors not just for its appreciation potential, but for its favorable tax treatment. This article provides a detailed comparison between investing in farmland and commercial shops, focusing on tax benefits, compliance obligations, and overall financial impact.
What Qualifies as Farmland and Commercial Property?
Understanding the definition of both asset types is the first step in evaluating their tax implications.
Farmland refers to land designated for agricultural use. In some Indian states, only individuals with a farmer status can purchase agricultural land. However, Rajasthan is one of the more flexible states where non-farmers are also permitted to invest in such properties.
Commercial shops include retail outlets, showrooms, office spaces, and other commercial-use buildings located in cities and towns. They are typically income-generating assets due to their rental potential.
1. Income Tax on Earnings from Farmland vs Commercial Shops
Farmland:
Income generated from genuine agricultural activity, such as crop production or lease for agricultural purposes, is fully exempt from income tax under Section 10(1) of the Income Tax Act. This makes farmland an attractive option for investors looking to legally reduce their taxable income.
Commercial Shops:
Rental income earned from commercial shops is taxable under the head “Income from House Property”. The rental income is added to your total annual income and taxed according to your slab rate. Standard deductions may apply, but the income remains taxable.
2. GST Applicability
Farmland:
The sale or lease of agricultural land is exempt from Goods and Services Tax (GST). This makes the transaction simpler and reduces the overall cost for the investor.
Commercial Shops:
If the seller or lessor is registered under GST, the sale or rental of commercial shops is liable to 18 percent GST. This significantly increases the cost of acquisition or lease.
3. Stamp Duty and Registration Charges
Farmland:
In Rajasthan, stamp duty for agricultural land is generally lower compared to commercial properties. For instance, farmland in Naugaon, Alwar may attract stamp duty in the range of 4 to 6 percent, depending on local authorities and plot size.
Commercial Shops:
Commercial property transactions typically incur higher stamp duty, often between 6 and 8 percent. Additional registration fees and urban taxes may also be applicable.
4. Capital Gains Tax Implications
Farmland:
Capital gains on the sale of agricultural land may be exempt under Section 54B of the Income Tax Act if the land was used for agricultural purposes for at least two years prior to the sale and the gains are reinvested in another piece of agricultural land.
Short-term capital gains (for holding periods less than two years) are taxed at the individual’s applicable slab rate. Long-term capital gains (held for over two years) are taxed at 20 percent with indexation benefits.
Commercial Shops:
Capital gains from the sale of commercial shops are subject to taxation. Short-term gains are taxed at slab rates, while long-term gains (beyond 24 months) are taxed at 20 percent after indexation. Exemptions under Section 54F may be available if the gains are reinvested in residential property, but not in commercial property.
5. Wealth Tax and Asset Classification
Farmland:
Agricultural land is not considered a taxable asset under the old Wealth Tax Act. Though wealth tax was abolished in 2015, this classification could matter in future financial regulations or reinstatements.
Commercial Shops:
Shops and other commercial real estate are considered wealth-bearing assets. If any future wealth tax is introduced, these properties may fall under its scope.
6. Depreciation and Tax Deductions
Commercial Shops:
If you use your shop for business purposes, you can claim depreciation under “Income from Business or Profession”. The standard depreciation rate is generally 10 percent per annum, which reduces the taxable business income.
Farmland:
Depreciation benefits do not apply to land under Indian tax laws. Since land does not depreciate in value in the same way as buildings or machinery, no depreciation can be claimed.
Tax on Income from Farmland vs. Shops
Farmland
Income derived from genuine agricultural activity is fully exempt from income tax under Section 10(1) of the Income Tax Act. This includes profits from selling crops, leasing land for cultivation, or earning from agri-based ventures.
Example: If you lease your farmland in Naugaon to a local farmer and earn ₹2 lakh annually, it is not taxable if used for agricultural purposes.
Commercial Shops
Rental income earned from commercial shops is taxable under “Income from House Property.” The rate depends on your total annual income, ranging from 5% to 30% or more. You must also account for standard deductions, municipal taxes, and possible TDS deductions by tenants.
Example: If you earn ₹2 lakh per year from renting a shop, it will be added to your taxable income and taxed according to your slab.
Why Naugaon, Alwar, Rajasthan is Gaining Ground with Farmland Investors
Naugaon, located in Alwar district of Rajasthan, is rapidly developing as a preferred destination for farmland investments. Several factors contribute to this trend:
- Proximity to the Delhi-Mumbai Expressway and Delhi NCR region
- Ongoing development by RIICO and upcoming industrial zones nearby
- Availability of gated farmland projects such as Kushal Elysian Farms
- State policies in Rajasthan allow even non-farmers to buy agricultural land
- Lower acquisition and compliance costs compared to urban properties
Investors in Naugaon can enjoy both capital appreciation and tax-free agricultural income, making it an ideal location for long-term, low-risk investment.
Comparison Table: Farmland vs Commercial Shops (Tax View)
| Factor | Farmland (e.g., Naugaon) | Commercial Shops |
| Income Tax | Exempt (if agricultural use) | Fully taxable |
| GST | Not applicable | 18% (if GST-registered) |
| Stamp Duty | 4–6% (rural rates) | 6–8% (urban rates) |
| Capital Gains Exemption | Section 54B | Section 54/54F (limited) |
| Depreciation | Not applicable | Allowed (business use) |
| Rental Income | Tax-free if agri-related | Taxable |
| Wealth Classification | Not a taxable asset | Considered taxable asset |
| Annual Compliance | Low | High |
Which Investment Suits You?
Choose Farmland if you:
- Want to reduce taxable income legally
- Prefer long-term asset appreciation
- Need low maintenance property
- Plan to develop a farmhouse or use it for agri-business
Choose Commercial Shops if you:
- Want steady monthly income from rentals
- Are comfortable with higher compliance
- Have a higher budget for upfront and annual costs
- Prefer urban markets with immediate leasing demand
Conclusion
The decision between investing in farmland and commercial shops ultimately depends on your investment strategy. If your goal is to earn tax-free income, reduce long-term liabilities, and invest in a low-risk appreciating asset, then buying farmland in Naugaon, Alwar, Rajasthan is an ideal choice. With favorable land laws, minimal compliance, and zero GST, farmland stands out as a more tax-efficient asset class.
On the other hand, if your priority is short-term rental income in urban areas and you’re comfortable managing tenants, taxes, and regulatory filings, then investing in a commercial shop might be better suited for you.Understanding the tax landscape of both options ensures you make a financially sound and future-proof decision.
FAQs
1. Is agricultural income from farmland in India completely tax-free?
Yes. Under Section 10(1) of the Income Tax Act, agricultural income from farmland is exempt from income tax, provided the land is used for genuine agricultural purposes. However, in certain cases, indirect tax implications may still apply
2. Do I have to pay GST when buying or renting a commercial shop in India?
Yes. GST applies to the lease or sale of commercial properties such as shops if the seller or lessor is registered under GST. This tax liability does not apply to agricultural land, making farmland more tax-efficient.
3. Can capital gains from the sale of farmland be tax-exempt?
Yes. If you sell farmland and reinvest the proceeds into other agricultural land, you may claim capital gains exemption under Section 5 of the Income Tax Act, provided the specified conditions are met. Such exemptions are not available for commercial shop sales.
4. Is rental income from farmland taxable like rental income from shops?
No. Rental income from farmland (when used strictly for agriculture) is generally treated as agricultural income and is tax-exempt. In contrast, rental income from commercial shops is fully taxable under “Income from House Property.”
5. What are the stamp duty and registration charges for farmland vs commercial shops?
Farmland often benefits from lower stamp duty rates, especially in states like Rajasthan. In comparison, commercial shops attract higher registration charges and taxes, which increases the total cost of acquisition.
