UPSC Prelims 2025 · GS Paper I

Question 5: Economy and Social Development

Consider the following statements :

Statement IIn India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.
Statement IIIn 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 in respect of the above statements?

aBoth Statement I and Statement II are correct and Statement II explains Statement I

bBoth Statement I and Statement II are correct but Statement II does not explain Statement I

cStatement I is correct but Statement II is not correct

dStatement I is not correct but Statement II is correct

AnswerThe answer is (d).

Agricultural income is exempt from income tax under section 10(1) of the Income-tax Act, 1961, but income from poultry farming, wool rearing and similar allied activities is not agricultural income, so it is not exempt on that ground. Statement I is wrong. Rural agricultural land (land outside the prescribed distances from municipal limits, which depend on population) is excluded from the definition of capital asset in section 2(14), so its sale attracts no capital gains tax. Statement II is right. Remember: land is covered, allied activities are not.

I. Income from poultry or wool rearing is not agricultural income and is not exempt on that basis.
II. Rural agricultural land is excluded from capital assets under section 2(14).

How you could have got this

If you were sure Statement I is not correct, only (d) is left: every other option says it is correct.

What you needed to know: Income from poultry or wool rearing is not agricultural income and is not exempt on that basis.

This follows an unofficial answer: UPSC has not published its key for this year, and if that answer is wrong, so is this path.

Which options go is worked out from UPSC’s key and the options, not by a model.

Why each option is right or wrong

(a) Wrong: Statement I is incorrect, so Statement II cannot explain it.
(b) Wrong: Statement I is incorrect.
(c) Wrong: it reverses the position; Statement II is the correct one.
(d) Right: allied activity income is not exempt as agricultural income, while rural agricultural land is not a capital asset.

Worth knowing: The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026, so the section numbers quoted here no longer apply to current years.

Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 2025, General Studies Paper I, Series A. The paper on upsc.gov.in.