How to Buy Agricultural Land in India, What You Should Know

Given the increasing interest in organic farming, agri-tourism, sustainable living, or just investing in real estate, buying agricultural land might seem like a good investment. However, the process of securing land or farmland can be fraught with legal, financial and bureaucratic hassles that varies from state to state; and missing one step can delay or scuttle the deal.

Here’s what future buyers should consider before they put their money down on farmland in India.

Know the Legal Landscape

Before anything else, a buyer must ensure that the land is legally eligible for sale. This means verifying that the seller has a clear, marketable title and that the land is free from disputes or encumbrances such as mortgages or liens. An encumbrance certificate from the local sub-registrar's office can help confirm that no loans or claims are pending on the property.

State land records, such as title deeds, revenue documents, and past ownership history, should also be carefully reviewed.

Who Can Buy: Not Everyone

In many states, farmland is not freely available for purchase by the general public. The rules on who is allowed to own agricultural land vary widely.

In Maharashtra, for instance, only registered farmers can legally buy such land unless a non-farmer secures special permission. Karnataka permits non-farmers to purchase farmland, but only if their annual income is below Rs 25 lakh. States like Tamil Nadu and West Bengal have more relaxed laws, while Himachal Pradesh and Uttarakhand require non-residents to obtain prior government approval.

Knowing your eligibility based on the state’s land laws is essential. Legal consultation is advised before proceeding.

Land Use Categories

Agricultural land is often designated for specific purposes, whether it’s for crop cultivation, horticulture, or pasture. Using it for anything outside its classification, including building a house or commercial structure, requires a formal conversion process, which is neither quick nor guaranteed.

Buyers must match their intended use with the existing land classification and avoid assumptions about future flexibility.

Water, Soil, and Location Matter

Beyond legality, the land’s agricultural potential is key. Fertile soil, access to water sources, and proximity to roads or markets can significantly impact productivity and future resale value. Land with irrigation access, through canals, borewells, or nearby rivers, is typically more desirable.

Paperwork You Can’t Skip

The documentation involved in purchasing farmlands is extensive. Among the essential records are:

§  Title Deed: Establishes ownership and must be free of disputes.

§  Encumbrance Certificate: Confirms that there are no outstanding loans or legal claims.

§  Record of Rights (ROR): Shows land classification, current and previous owners, and usage.

§  Tax Receipts: Validates that the seller has paid all dues to date.

§  Mutation Entry: Documents ownership transfers over time and should align with the title deed.

Buying the Land: Step-by-Step

Once the property is vetted, the process typically follows these steps:

§  Site Visit and Due Diligence: Inspect the land in person, verify records, and assess risks such as ongoing litigation or pending conversions.

§  Identity Check: Ensure that the seller’s identity matches the title holder. Any mismatch could signal a problem.

§  Clear Local Restrictions: Understand the state’s rules and whether any special permissions or no-objection certificates (NOCs) are required.

§  Sale Agreement: Draft a formal agreement outlining payment terms, land details, liabilities, and the date of possession. This must be signed by both parties.

§  Sale Deed Registration: Pay the applicable stamp duty and register the sale at the sub-registrar’s office. After this, the transaction is legally binding and the buyer is recorded as the landowner.

Tax Implications

There are a few unique tax implications that come with owning farmland in India. Income earned from agricultural activities is exempt from income tax under Indian law. However, if the land is sold after being held for more than two years, long-term capital gains (LTCG) tax may apply, unless the sale proceeds are reinvested in agricultural assets as per exemptions.

Stamp duty and registration charges should also be budgeted into your investment plan, as they can run high depending on location.

Restrictions for NRIs

Under the Foreign Exchange Management Act (FEMA) 2000, non-resident Indians (NRIs) and persons of Indian origin (PIOss) are generally prohibited from purchasing agricultural land, plantation properties, or farmhouses in India.

However, they can acquire such properties through inheritance or by obtaining specific approval from the Reserve Bank of India (RBI). The RBI evaluates applications based on the intended use of the land and compliance with local laws.

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