Explanation : 

Based on Income Tax Bill 2025

Statement I: In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.

This statement is incorrect. Under the Income-tax Act, 1961, “agricultural income” is exempt from tax under Section 10(1). However, the Act defines agricultural income as income derived from land used for agricultural purposes, such as rent or revenue from such land, and income from agricultural operations like cultivation and processing of agricultural produce. Allied agricultural activities such as poultry farming, wool rearing, dairy farming, and bee-keeping are generally not considered agricultural income because they do not involve the direct cultivation of land. As a result, income from these activities is usually taxable as business income. The central government can levy tax on income from such allied activities. Additionally, the Income Tax Bill 2025 has clarified that income from dairy, poultry, and fisheries is fully taxable and not treated as agricultural income.

Statement II: In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.

This statement is correct. According to Section 45 of the Income-tax Act, 1961, rural agricultural land in India is not considered a capital asset. Therefore, any gains arising from the sale of such land are not taxable under the head ‘Capital Gains’. The Act specifies criteria for what qualifies as rural agricultural land, based on its location, the population of the nearest municipality or cantonment board, and the aerial distance from its limits.

Conclusion:
Statement I is not correct, but Statement II is correct.