Agriculture continues to be the primary occupation in India despite the progress of secondary and tertiary sectors. The government tries to promote agriculture by giving various benefits. One of them is income tax benefits. Although practically exempt, agricultural income taxability is a little more layered. Here’s a somewhat simpler breakdown.
Definition of agricultural income
Under Section 2(1A) of the Income Tax Act, agricultural income in India is defined as
- Earnings from land used for agriculture in the country
- Money earned from this kind of land by agricultural operations like processing of farm produce
- Earnings from a farmhouse (subject to certain conditions)
- Income from a nursery
What is not agricultural income?
- Earnings from poultry farming
- Dairy farming income
- Dividends paid by an organisation from agricultural earnings
- Income from the selling of tree that has grown spontaneously
- Income from shooting/filming in premises of farmhouse
Is any tax levied on agricultural income?
Under Section 10(1) of the Income Tax Act, agricultural income in India is not taxed. The Central Government does not impose taxes on agricultural income. But, agricultural income taxability is a slightly different matter as it is taken into account for rate calculation while assessing income tax payable under the following conditions.
- Net agricultural earnings of the previous year are more than ₹5000
- Total non-agricultural income is above the exemption limit ( Citizens aged less than 60 years: ₹2.5 lakhs, Citizens from 60-80 years: ₹3 lakhs, citizens aged 80+ years: ₹5 lakhs)
When these conditions are fulfilled, the income tax is computed as follows:
|Step 1||Calculate Tax on:
(Non-agricultural income + net agricultural income)
|Step 2||Calculate Tax on:
(Net Agricultural Income + Maximum exemption limit as per slab rates)
|Step 3||Calculate final tax (1) - (2) and then:
(-) Subtract rebate, if applicable
(+) Add surcharge, if applicable
(+) Add Education & Secondary & Higher Education cess
What about the sale of agricultural land?
Under Section 54B of the Income Tax Act, agricultural income in India from the sale of agricultural land is exempt from tax if the sale amount is used to buy any other agricultural land. Even for availing this benefit, certain conditions are to be fulfilled.
- The entity has to be an individual of a Hindu Undivided Family (HUF)
- The land must be utilised for agriculture by the person or their parents or any member of a HUF for minimum 2 years before the day when the sale of land happened.
- The purchase of another land should happen within 2 years after the day of sale of the previous land.
- In the event of acquisition of land under law, this period will begin from the day when compensation is received.