Agriculture remains one of the largest employment sectors in India, playing a vital role in supporting rural households. The Food and Agriculture Organization (FAO) reports that agriculture is the primary source of income for about 70% of rural Indian households. To nurture this essential sector, the Indian government offers various policies, schemes, and tax exemptions for agricultural income, contributing to financial stability for farmers.
Agricultural incomes refers to revenue generated from activities directly connected with agriculture. This income may be derived from farming land, buildings associated with agricultural land, and commercial products cultivated on such land. Section 2(1A) of the Income Tax Act, 1961, defines “agricultural incomes” under three primary categories:
Rent or Revenue from Agricultural Land: Income generated through rent or revenue from agricultural land located in India and used exclusively for agricultural purposes.
Commercial Sale of Agricultural Produce: Earnings derived from the sale of produce obtained from agricultural land.
Income from Buildings Linked to Agricultural Land: Revenue from renting or leasing buildings situated near agricultural land, subject to the following conditions:
Categorizing income as agricultural requires that the income source meets certain standards:
The following table summarizes the various types of income considered as agricultural under Indian tax laws:
| Type of Income | Description |
| Rent/Revenue from Land | Landowners receive rent from cultivators, either in cash or in kind. |
| Income from Agricultural Operations | Earnings from selling produce cultivated on the land. |
| Income from Buildings Near Agricultural Land | Rent from buildings serving as storage for agricultural produce or as housing for cultivators. |
According to Section 10(1) of the Income Tax Act, of 1961, agricultural incomes is exempt from central income tax, meaning the government does not impose any central taxes on agricultural earnings. However, agricultural incomes may still be subject to state-level taxes.
In some cases, agricultural incomes are integrated with non-agricultural incomes to determine tax rates, based on the following conditions:
If these criteria are met, tax on agricultural incomes is calculated as follows:
1 Step: Calculate tax on the sum of non-agricultural incomes and net agricultural incomes.
2 Step: Calculate tax on net agricultural incomes plus the maximum tax exemption limit.
3 Step: Subtract the figure in Step 2 from Step 1 to determine the tax liability. Then, add any applicable surcharges, health, and education cess to reach the final tax amount.
Consider an individual, aged 50, with Rs. 3,00,000 as agricultural incomes and Rs. 5,00,000 as non-agricultural incomes.
Tax on non-agricultural incomes + net agricultural incomes (Rs. 8,00,000):
Tax on net agricultural incomes + exemption limit (Rs. 5,50,000):
Final tax liability calculation:
For taxpayers with agricultural incomes less than Rs. 5,000, ITR 1 is used for reporting. If agricultural incomes exceed this amount, individuals must file an ITR-2 form.
Agricultural incomes is a cornerstone of livelihood for millions in India. Recognizing this, the government provides tax exemptions and integration methods to ensure fair treatment of agricultural incomes while keeping state-level taxation intact.
Agricultural income includes earnings from rent or revenue from agricultural land, income from the sale of produce, and rent from buildings used in agricultural land.
Yes, agricultural income is exempt from central income tax under Section 10(1) but may be subject to state taxes.
If your agricultural income is below Rs. 5,000, you can use ITR 1. If it exceeds this, ITR-2 is required.
Partial integration is a method used to calculate tax by combining agricultural and non-agricultural income to determine the tax rate, applicable when agricultural income exceeds Rs. 5,000, and non-agricultural income surpasses specific exemption limits.
No, agricultural income includes income from land cultivation but excludes non-agricultural activities like dairy farming, livestock breeding, or poultry farming.
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