Agricultural income is exempt in India, however, its included, for tax rate purposes, while calculating the Income Tax Liability of taxpayer where net agricultural income is more than Rs 5,000/- AND Other Taxable Income is more than basic exemption limit.
In short, taxpayers having agricultural income as the only source of income are not required to file their Income-tax return. But if taxpayer is earning any other income besides agricultural income like salary, house rent, business income etc., then he is required to file his return after considering agricultural income in the return.
- What is agricultural income?
As per Income Tax Act, following Incomes are treated as agricultural income –
- Any income received from agricultural land by performing agricultural operations which includes various processes such as weeding, soil digging, cutting, harvesting, tending etc.
- Any rental income received from land in India which is used for agricultural purpose.
- Income received from saplings or seedlings grown in a nursery.
- Income from a farm house/building (subject to certain conditions).
- In what cases Income from farm house/building will be treated as agricultural income?
Farm building is treated as house property and hence income earned from farm building is taxable as ‘Income from house property’. However, if all the following conditions are satisfied then income received from a farm building is treated as agricultural income and will not be taxable-
- The farm building is occupied by cultivator of agricultural land,
- Farm building is on or adjacent to the agricultural land,
- Farm house is used as a dwelling house or store house,
- Agricultural land is located in rural area.
- Some of examples similar to agricultural income but not treated as agricultural income :-
- Owner of agricultural land gives his land on hire for some other commercial purposes, in such case rentals received by owner is not an agricultural income.
E.g. Mr. Karthik provides his agricultural land on rent for wedding or reception ceremonies in his town. In this case, rentals received by Mr. Karthik are not an agricultural income.
2. Taxpayer is running a business of supply of water for agricultural lands in his town, in such case income earned by him is not an agricultural income.
3. A company is carrying agricultural activities in India. Here, dividends paid by company to it shareholders is not treated as agricultural income.
4. Taxpayer is running a business of producing salt by flooding the land with sea water, in such case income earned is not treated as agricultural income.
5. Taxpayer is selling naturally growing plants viz. forest trees, fruits, flowers etc., in such case income earned by him is not an agricultural income.
6. Taxpayer is carrying business of trading of standing crops, in such case his receipts shall not be treated as agricultural income.
7. A company is carrying out agricultural activities in India. Taxpayer is working as an agent of the company. Here, commission income of a taxpayer (agent) is not an agricultural income.