As per the existing provisions, cities and towns are not divided based on population. They provide uniform limit of 8 km for defining capital assets or non-agricultural land parcel. But based on the revised distance and population criteria, sellers can save about 20% of long term capital gains tax under exemption, if the transaction follows all other rules of Income Tax Act.
I guess the benefit is higher in tier II and III cities and towns. Land buyers and sellers around these towns will be allowed to claim exemption from long-term capital gains tax for their land parcels situated beyond 6 km.
Veena, usually a town with a population of less than 10 lakh shall be referred to as small town. It can be cities also.. There are over 450 such cities including Noida, Greater Noida, Gurgaon, Mathura, Panvel, Mira-Bhayander, Bhiwandi, Siliguri, Guwahati and Jamnagar wherein population ranges between 1 lakh and 10 lakh.
Finance Bill 2013 looks toward improving the distance and population criteria for determining agricultural land as a capital asset without levying any capital gains tax, land transactions around smaller towns are expected to increase.