Lucknow: In a major respite to land owners and farmers who had to part ways with their agricultural fields during the land acquisition process, the Union Government has decided not to deduct Tax Deduction at Source (TDS) on the compensation given to the farmers after selling their lands.

In a letter to the State Revenue Department, the Centre stated compensation given to farmers in lieu of their agricultural land cannot be subjected to any form of tax deduction.

As the officials from the Tax Department were unaware of the tax related rules, they were deducting TDS on the compensation earned by farmers, the letter stated. According to the Centre directive, transfer of agricultural land in rural areas does not fall under any tax liability.

Director of Land Reforms Division under Rural Development Ministry, Chandrajeet Singh wrote a letter to the Principal Secretary of the Revenue Department K K Sinha in this regard.

Regarding land owned by farmers in urban areas, the letter said that rules listed from April 1, 2004 will be followed according to which the land will be free from any tax where farming was done two years before its acquisition.