Agriculture has always been a major livelihood source in India.

We and the economy

are hanging on these agricultural activities. India exports several agricultural yields. This
huge reliance on agricultural income and produce makes it a priority sector. The
government has implemented various policies, schemes, and subsidies to support and
promote the agricultural sector's growth. These include the Pradhan Mantri Fasal Bima
Yojana, Pradhan Mantri Krishi Sinchai Yojana, and Kisan Credit Card scheme. The goal is
to promote this sector and offer a suitable livelihood to the workers. That's why agricultural
income under income tax has special rules. Farmers and workers are often provided
a rebate on agriculture income to reduce their burden.

What is Agricultural Income?

Agricultural income is the income or revenue earned from agricultural activities and
sources. The sources must be used for agricultural goals. Some sources are farming land,
storing buildings, or horticulture land. It helps classify agriculture income tax and
earnings. One must show the source used in farming to avail of the benefits.

Any income that is earned through agricultural activities is agricultural income. It can be
from selling produce or renting from farming land. Agricultural income meaning also
includes horticulture land and produce. Showing proof of the activities and sources
of agriculture income tax is crucial.

Section 2 (1A) from India's Income Tax Act, 1961, classifies the definition of agricultural
income into three categories.

o Rent or revenue from Indian agricultural land. It must be present in India and be
used for agricultural or farming purposes.

o The sale of grains and crops grown on the farming land. To define agricultural
income, it should be a commercial sale.

o Renting or leasing buildings and other properties on farming land or around it. There
are specific needs related to this point as follows.

o The building should be located on or near agricultural land.

o The cultivator or farmer doesn't need to occupy the building. It can be rented
out to a third party for non-agricultural goals.

o The building should be used for agricultural goals, such as processing,

storage, or packing agricultural produce.

o The rent received for the building should be valid and in line with the general
market rates.

o The local authorities should not have set municipal taxes or other charges on
the building.

Features of Agricultural Income

Agricultural income in India has the following features.

o Exempt income: Agricultural income is exempt from taxation. It means that the
farmers and other agricultural workers don't have to pay taxes on their income.
 o Farming activities: Agricultural land has income from various farming activities like
cultivation, harvesting, or sale of crops.

o Animal husbandry: Money earned from poultry or dairy farming is also an

agricultural income. Selling milk, honey, and eggs is part of the exempt income.

o Horticulture income: Horticulture activities like the growth and sale of flowers,
vegetables, and fruits are also agricultural activities.

o Forestry: Activities like the sale of wood and timber are also under agricultural
income.

o Exemption limit: The agricultural income exemptions are set by the state. Earnings
below this limit are not taxed and are thus more profitable for the farmer.

Categorization of Agricultural Income

Agriculture income is taxable under special rules in the Income Tax Act. Agriculture
income tax in India provides concessions and subsidies. To explain agricultural
income and categorize it, refer below.

o Existence of land: Agricultural income earned should be from an existing land

piece

o Utilization of land: The existing land must be used for agricultural income. Rent or
revenue income should come through agricultural utilization. The sale of agricultural
income goods must be from the farming ground.

o Cultivation of Land: The meaning of agriculture income specifies land use for
cultivation. The cultivation can include different crops, fruits, grains, etc.

o Land Ownership (Optional): The farmer does not have to own the land. They can
rent or lease it. The owner must be curious in the land for rent or revenue income.
They can be the owner or mortgagee.

Types of Agricultural Income

Several types of agricultural income help people have exemptions. To understand what
you mean by agricultural income, refer below for its types.

Rent received from Rent or revenue generated by any land held for agricultural income
agricultural land purposes.

Sale of agricultural A farmer sells wheat crops in the market. He earns a profit for the
produce same. The farmer can do so on his own land or rented.

Income from farm Example: A building used as a warehouse by the farmer can be
building among examples of agricultural income. The owner should receive
rent for this building.

Income from Agricultural operations include activities of harvesting for an end-

agricultural profit goal
operations

Income from nursery Nursery operations include growing and selling saplings of plants
operations and crops for a profit
 Income from Horticulture activities involve cultivating fruits, nuts, vegetables,
horticulture seeds, sprouts, etc.
activities

These three types can help one understand what is agricultural income in income tax.

Agricultural Income in Income Tax

To answer is agricultural income taxable in India, refer to the following points.

o Agricultural income is an exempt income. Section 10(1) of India's Income Tax Act
explains this exemption.

o It means that the central government doesn't have any tax on agricultural income.
However, one has to pay tax on agricultural income to the state government.

o The legislative method of partially integrating agricultural income with non-

agricultural income helps calculate how much agricultural income is tax-free.

o This legislative rule will be applicable if specific conditions are met. Read about them
below.

o The total net agricultural income was above ₹5,000 in the past financial year.

o The individual's total income after the deduction of agricultural income is

higher than the basic exemption offered. The basic exemption limit is ₹2.5
Lakhs for people below 60, ₹3 Lakhs for those above 60 age, and ₹5 Lakhs for
those above 80 age.

The agricultural income examples must fulfill these conditions. It helps ensure that
correct taxation rules are followed. The individual doesn't have to pay any tax to the central
government.

Find about the Scope and Importance of International Business here.

Calculation of Agricultural Income Tax

An individual must fulfill the agricultural income criteria mentioned above before tax
calculation. They can use the following steps to know how to calculate agriculture income
tax.

o Step 1: Evaluation of non-agricultural income and net agricultural income tax

o Step 2: Tax calculation on the net agricultural income, along with the maximum
basic exemption limit offered in Income Tax

o Step 3: The final tax amount is calculated by subtracting the figures from steps 1st
and 2nd. The following items are derived after finishing this step.

o Health and Education Cess addition

o Rebate deductions, if applicable

o Surcharge addition, if applicable

Read about difference between cash flow and fund flow analysis.
Taxation of Agricultural Income
The taxation of agricultural income varies wildly from one nation to another, and in some
nations, agricultural income may be exempt from income tax entirely. The treatment of
agricultural income relies on the tax laws and regulations of each jurisdiction. Here are
some general points to consider regarding the taxation of agricultural income:

o Exemption or Concession: In many nations, agricultural income is either partially or

fully exempt from income tax. This exemption or benefit is often aimed at helping
and boosting the agricultural sector, which is critical for food security and rural
livelihoods.

o Definition of Agricultural Income: Tax laws typically define what qualifies as

agricultural income. This definition may vary but often includes income generated
from farming activities, such as the sale of crops, livestock, dairy products, and
agricultural land.

o Non-Agricultural Activities: In some cases, income from non-agricultural activities

conducted on agricultural land (e.g., renting land for non-agricultural purposes) may
be subject to regular income tax.

o Capital Gains and Agricultural Land: Capital gains from the sale of agricultural land
may have different tax treatment. Some nations tax capital gains on agricultural
land, while others provide benefits or immunities under certain conditions.

o Progressive Taxation: In nations where agricultural income is subject to tax, the tax
rates may vary based on the level of income. Progressive tax systems may impose
higher tax rates on higher levels of agricultural income.

o Farm Expenses and Deductions: Farmers are often allowed to deduct certain costs
related to agricultural activities, such as the cost of seeds, fertilizers, machinery, and
labor, to determine their taxable income.

o Agricultural Tax Credits and Incentives: Some states provide tax credits or stimuli to
foster tolerable agricultural practices, research and growth in agriculture, or
investment in rural infrastructure.

o Taxation of Agricultural Trade: Agricultural income earned through agricultural

firms, such as farmings or agro-processing firms, may be subject to corporate income
tax rather than individual income tax.

o Keeping and Reporting: Farmers and agricultural income earners are typically
required to maintain records of their income and expenses and report their
agricultural income accurately to tax authorities.

o Local and Regional Variations: Taxation of agricultural income can also vary at the
local or regional level within a nation, depending on the specific tax laws and rules of
each jurisdiction.

Read about Exempted incomes.

Agriculture Income Example

The following agriculture income example can help one better know the steps above. It
allows one to estimate how much they owe to the state.
Suppose an individual earned ₹3 Lakhs agricultural income. The non-agricultural income
was ₹5 Lakhs. These earnings were from the previous financial year. The total income was
thus ₹8 Lakhs.

Step 1: Evaluation of tax for the sum of non-agricultural and agricultural income of ₹8
Lakhs.

o Upto the first ₹2.5 Lakhs: None

o Second ₹2.5 Lakhs: 5% rate= ₹12,500

o Balance ₹3 Lakhs: 20% rate= ₹60,000

o The total is thus ₹(60,000 + 12,500)= ₹72,500

Step 2: Evaluation of tax for the agricultural income+ Basic minimum exemption limit
(Total= ₹3 Lakhs + ₹2.5 Lakhs= ₹5.5 Lakhs)

o First ₹2.5 Lakhs: None

o Second ₹2.5 Lakhs: 5% rate= ₹12,500

o Balance ₹50,000: 20% rate= ₹10,000

o The total is thus ₹ (12,500 + 10,000) = ₹22,500

Step 3: Final tax by subtracting the amounts from 1st and 2nd steps

o Step 1: ₹72,500

o Step 2: ₹22,500

o Difference: ₹50,000

The tax amount for this agricultural income is ₹50,000. Also, one has to add the Health
and Education Cess at 4%. (4% of 50,000= 2,000)

The total tax comes out at ₹52,000

The total tax amount payable by the individual is thus ₹52,000. This amount is for the
previous financial year. The individual has to show the sources and pay the tax amount in
the assessment year.

Agricultural Income in Income Tax Return

One has to file their returns for agricultural income. It is vital to show all the sources and
amounts. It is mandatory to meet income tax returns for agricultural income if it exceeds
the basic exemption limit, which is ₹2.5 Lakhs for people below 60, ₹3 Lakhs for those
above 60 age, and ₹5 Lakhs for those above 80 age.

o ITR-1 is applicable for individuals having income up to ₹5,000, and if agricultural

income exceeds ₹5,000, then ITR-2 is applicable.

o However, if an individual has income from a firm or profession, then ITR-3 is

applicable.

Conclusion
Agricultural income is a significant growth driver for the country. The primary income of
many is dependent on this sector. Correct measures and facilities are essential for the
nation's farmers. The government has made the ITR process easier. Also, it imposes a lower
burden on the nation's farmers. They can have more in-hand income and donate to the
result.