Agricultural Income in Income Tax

Agricultural income in India occupies a unique position within the framework of the Income Tax Act, 1961. While generally exempt from taxation at the central level, it can significantly influence an individual's overall tax liability and is subject to taxation by state governments. This article delves into the intricacies of agricultural income, its tax implications, and the relevant provisions under the Income Tax Act.

Read more
kapil-sharma
  • 4.8~ Rated
  • 7.7 Crore Registered Consumer
  • 50 Partners Insurance Partners
  • 4.2 Crore Policies Sold

Tax Saving Plans

  • Get Returns That Beat Inflation
  • Zero Capital Gains tax
  • Save upto Rs 46,800In Tax under section 80C^
We are rated~
rating
7.7 Crore
Registered Consumer
50
Insurance Partners
4.2 Crore
Policies Sold
Get Instant Tax Receipts
Save Upto ₹46,800 in Taxes Under Section 80C^
+91
Secure
We don’t spam
View Plans
Please wait. We Are Processing..
Your personal information is secure with us
Plans available only for people of Indian origin By clicking on "View Plans" you agree to our Privacy Policy and Terms of use #For a 55 year on investment of 20Lacs #Discount offered by insurance company
Get Updates on WhatsApp
Disclaimer: ^Section 80C allows annual deductions of up to ₹1.5 lacs from the taxable income. Section 10(10D) provides tax-free maturity benefits for investments of up to ₹2.5 Lacs/ year, on policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.
We are rated~
rating
7.7 Crore
Registered Consumer
50
Insurance Partners
4.2 Crore
Policies Sold

What is Agricultural Income?

Section 2(1A) of the Income Tax Act provides a comprehensive definition of agricultural income. Essentially, it includes income derived from sources directly related to agricultural activities, including:

  • This includes rent or revenue generated from leasing agricultural land for farming purposes, as well as income from the land itself through cultivation of crops, fruits, vegetables, and other agricultural produce.

  • Income derived from activities closely associated with agriculture, such as livestock rearing (dairy farming, poultry farming), beekeeping, sericulture, and other allied activities.

  • May include income from the sale of agricultural produce, income from the sale of trees grown on agricultural land (excluding timber), and other related sources.

Agricultural Income Non-Agricultural Income
Gains a partner receives from a company that engages in agricultural activities or production Income from selling and cutting trees for lumber.
Income from seed sales Agricultural land income is held as stock-in-trade
Earnings from growing creepers and flowers Receipts from the farmhouse's use as the set for a TV series
Rent earned from agricultural land Any dividend received from a company's agricultural earnings
Sales of trees that have been planted again Income from producing cheese and butter
Interest on funds received by a partner from a business operating in agriculture. Income from raising poultry
- Income from the dairy industry.
- Earnings from bee hives.

Key Exclusions from Agricultural Income

These exclusions include:

  • Income from selling processed agricultural products without engaging in actual farming activities

  • Earnings from highly processed agricultural goods

  • Proceeds from the sale of trees as timber

Taxability of Agricultural Income

  • Central Government: A cornerstone of the Income Tax Act is the exemption of agricultural income from central taxation. Section 10(1) of the Act explicitly exempts agricultural income from the purview of income tax levied by the Central Government. This exemption applies regardless of the amount of agricultural income earned.

  • State Government: While exempt from central taxation, agricultural income can be subject to taxation by state governments. Most states in India levy a tax on agricultural income exceeding a certain threshold, which is typically a nominal amount. This state-level tax is levied and collected by the respective state governments according to their own tax laws and regulations.

  • Income above â‚ą5,000: While agricultural income is exempt from tax under Section 10(1), it may still attract state-level taxes if it exceeds â‚ą5,000 annually and the total non-agricultural income surpasses the basic exemption limit.

  • Basic threshold limit: Tax liability arises if the combined agricultural and total income exceeds the basic exemption limit.

Age Exemption Limit
Under 60 years Rs.2,50,000
60- 80 years Rs.3,00,000
Above 80 years Rs.5,00,000
  • For firms, non-individuals, and companies: They are subject to tax at a flat rate on their chargeable income.

  • For salaried individuals: Agricultural income could increase their overall tax liability due to income aggregation.

Save Tax Invest Today Save Tax Invest Today

Impact on Overall Tax Liability

Although agricultural income itself is generally exempt from central income tax, it can indirectly influence the overall tax liability of an individual. This is due to the concept of "aggregation of income" for determining the applicable tax slab.

  • Aggregation of Income: When calculating income tax liability, the total income of an individual is considered, including both agricultural and non-agricultural income. Even though agricultural income is not directly taxed at the central level, its inclusion in the calculation of total income can push an individual into a higher tax bracket, resulting in a higher tax liability on their non-agricultural income.

Tax Calculation

The calculation of income tax liability involving agricultural income can be summarized as follows:

  • Determine Total Income: Calculate the total income of the individual, including both agricultural and non-agricultural income.

  • Determine Taxable Income: Subtract the applicable deductions and exemptions from the total income to arrive at taxable income.

  • Apply Tax Slabs: Determine the applicable tax slab based on the taxable income.

  • Calculate Tax Liability: Calculate the tax liability based on the applicable tax slab and the taxable income.

  • Consider State-Level Taxes: If applicable, calculate and add any state-level taxes on agricultural income to the overall tax liability.

Invest & Save upto â‚ą46,800 per annum in taxInvest & Save upto â‚ą46,800 per annum in tax

Tax Benefits under Section 54B of the Income Tax Act

Section 54B of the Income Tax Act provides a specific tax benefit to individuals and Hindu Undivided Families (HUFs) who sell their agricultural land and reinvest the proceeds in acquiring new agricultural land. This section allows for a tax exemption on the capital gains arising from the sale of agricultural land, provided certain conditions are met:

  • Eligibility: The benefit is available to individuals and HUFs.

  • Land Use: The land sold must have been used for agricultural purposes by the individual or any member of the HUF for at least two years prior to the sale.

  • Reinvestment in Agricultural Land: The proceeds from the sale of the agricultural land must be reinvested in the purchase of new agricultural land within a specified timeframe.

Conclusion

Agricultural income, while exempt from central income tax, plays an important role in the Indian tax system. Understanding its implications is crucial for farmers, taxpayers, and tax professionals. While the central government generally does not levy tax on agricultural income, state-level taxes and the impact of agricultural income on the overall tax liability due to income aggregation need to be carefully considered.

FAQs

  • Are farmers required to pay income tax?

    Farmers in India do not have to pay income tax, as their income is exempt under current tax laws.
  • Is agricultural income completely exempt from taxation?

    Yes, income from agricultural activities is exempt under Section 10(1) of the Income Tax Act, 1961. However, it may be considered for tax rate purposes if agricultural income exceeds â‚ą5,000 and the total non-agricultural income surpasses the basic exemption limit (â‚ą2.5 lakh for individuals below 60 years, and â‚ą3 lakh for those aged 60 and above).
  • How much agricultural income is free from taxation in India?

    Agricultural income is tax-free if it is under â‚ą5,000 or if the total income, excluding agricultural earnings, is below the basic exemption limit (â‚ą2.5 lakh for those under 60 years, and â‚ą3 lakh for individuals 60 years or older).
  • How is agricultural income from tea cultivation treated?

    Income from tea farming is partially considered agricultural. Specifically, 60% of the income is tax-exempt, while 40% is taxed as business income.
  • What qualifies as partial agricultural income?

    Partial agricultural income refers to earnings where agricultural products are used as raw materials for manufacturing. In this case, income from selling such products is divided into agricultural and non-agricultural portions.
  • Does income from raising animals count as agricultural income?

    No, earnings from activities like animal husbandry, poultry farming, or beekeeping are not considered agricultural income.
  • Are all sources of agricultural income tax-exempt?

    No, activities like selling naturally grown fruits or trees, raising poultry, dairy farming, earning royalties from mining, salt production from seawater flooding, or leasing farmhouses for filming are not considered agricultural income.
  • How should agricultural income be declared in ITR-1?

    Agricultural income must be reported under the "Agricultural Income" section in ITR-1, but this form can only be used if the income is up to â‚ą5,000. If it exceeds â‚ą5,000, taxpayers must use Form ITR-2.
  • Is agricultural income from urban land taxable?

    No, agricultural income earned from urban or rural land is exempt from taxation.
  • If I earn agricultural income from land in Nepal, is it tax-free?

    No, only agricultural income derived from land located in India qualifies for tax exemption.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

Income Tax articles

Recent Articles
Popular Articles
SBI Multi Option Deposit Scheme (MOD)

24 Dec 2024

The SBI Multi Option Deposit Scheme (MOD) is an innovative
Read more
SBI Annuity Deposit Scheme

24 Dec 2024

The SBI Annuity Deposit Scheme is a financial product offered by
Read more
SBI Sarvottam (Non-Callable) Term Deposit

24 Dec 2024

The SBI Sarvottam (Non-Callable) Term Deposit Scheme is a
Read more
SBI Recurring Deposit Scheme

24 Dec 2024

The State Bank of India (SBI) offers a Recurring Deposit (RD)
Read more
SBI Green Rupee Term Deposit (SGRTD)

24 Dec 2024

The SBI Green Rupee Term Deposit (SGRTD) is a new savings scheme
Read more
SBI FD Interest Rates
  • 26 Apr 2017
  • 2618909
SBI FD interest rates 2025 range between 3.50% to 7.10% p.a. for regular citizens and 4.00% to 7.50% p.a. for
Read more
FD Premature Withdrawal Penalty Calculator
  • 14 Jul 2021
  • 25688
FD Premature Withdrawal Penalty Calculator calculates the penalty imposed on the investor for premature
Read more
Application for Withdrawal of Fixed Deposit
  • 03 Dec 2021
  • 27183
Fixed Deposits are the safest investment instruments. You invest the amount of your choice as the fixed deposit
Read more
SBI FD Premature Withdrawal Penalty Calculator
  • 14 Jul 2021
  • 24469
A fixed deposit (FD) is an interest-bearing investment that offers assured returns for a fixed tenure. In this
Read more
Post Office FD Interest Rates
  • 02 Jul 2020
  • 49814
Post office FD interest rate ranges between 6.9% to 7.5% p.a. for tenures of 1 year to 5 years. These rates are
Read more

top
Close
Download the Policybazaar app
to manage all your insurance needs.
INSTALL