Agricultural income is exempt in India, however, it is included, for tax rate purposes, while calculating the Income-tax liability of taxpayers where net agricultural income is more than Rs 5,000/- and Other Taxable Income is more than the 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 the 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 the Income-tax Act, the 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 purposes.
- Income is received from saplings or seedlings grown in a nursery.
- Income from a farmhouse/building (subject to certain conditions).
- In what cases Income from farmhouse/building will be treated as agricultural income?
The 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 a cultivator of agricultural land,
- The farm building is on or adjacent to the agricultural land,
- The farmhouse is used as a dwelling house or storehouse,
- Agricultural land is located in rural areas.
- Some examples similar to agricultural income but not treated as agricultural income are:-
- The owner of agricultural land gives his land on hire for some other commercial purposes, in such case rentals received by the 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 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 out agricultural activities in India. Here, dividends paid by the company to it shareholders are not treated as agricultural income.
4. Taxpayer is running a business of producing salt by flooding the land with seawater, 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. The taxpayer is working as an agent of the company. Here, the commission income of a taxpayer (agent) is not an agricultural income.