Agricultural Income in Income Tax: Meaning and Types

India is renowned as an agrarian country. Over 50 % of its workforce is involved in agricultural activities. There is no doubt in the fact that it plays an extremely vital role in strengthening India’s economy.Looking at the contribution, the Indian government has not levied taxes on individuals earning their livelihood through agricultural activities. However, there is a limit of tax exemption on agricultural income. In the below read, we will understand in detail what is agricultural income and what is the nitty-gritty of agricultural income taxation.

The Indian Income tax act of 1961 has given a definition of agricultural income under Section 2(A). Below is the simplified explanation of the description. Read on!

1. Income or rent generated from land used for agricultural activities. The land must be situated in India.
2. Profits derived from such land by carrying out agricultural tasks, including the processing of produce to make it suitable for sale in the market.
3. Subject to terms and conditions stated in Section 2(1A), income attributable to a farmhouse is also considered as agricultural income. Also, income earned by selling saplings and seeds grown in a nursery will be considered as agricultural income.

Below listed are some of the examples that can be considered as Agricultural income:

• Sale proceeds from replanted trees
• Sale proceeds of seeds
• Rent received for agricultural land
• Income from growing flowers and creepers

Not every income-generating agricultural activity is considered as agricultural income. Here are a few examples of non-agricultural income.

• Proceeds generated from poultry farming or bee-hiving
• Proceeds from the sale of grown trees
• Income from dairy farming

You will not be subjected to any tax on agricultural income in the following cases:

• If the income you earn from agricultural land is your only way of earning a livelihood. No other source of income.
• If your total income from agricultural sources is less than Rs 5000.

Tax liability is applicable in the following cases-

• If your net income from agricultural sources is more than Rs 5000.
• Non-agricultural income is greater than the set tax exemption limits which are as follows:

• Individuals below 60 years – Rs 2,50,000
• Individuals above 60 years – Rs 3,00,000
• Individuals above 80 years – Rs 5,00,000

If income from sources other than that of agriculture is greater than the above exemption limits, then the individual will be liable to pay tax to the government.

1. Total agricultural income + non-agricultural income
2. Total agricultural income + highest exemption limit
3. Calculate final tax applicable (1) – (2) as above

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.