Understanding Agricultural Income and Income Tax in India

In India, agricultural income is exempt from income tax. However, if a taxpayer has agricultural income, the rate at which they pay tax on non-agricultural income depends on the quantum of agricultural income. Agricultural income is used to calculate the basic exemption limit for taxpayers.

The Government of India introduced an alternative method of taxing agricultural income. Under this method, agricultural income is used to calculate the basic exemption limit for taxpayers. Any revenue from land used for agricultural purposes in India is exempt. The rent received from the land will be treated as agricultural income, but the person to whom the land is given on rent must use the land for exclusively agricultural purposes.

The farm building should be in the immediate vicinity of the agricultural land and should not be distant from the agricultural land. The farm building must be assessed to land revenue in India. Examples of agricultural income include income from the sale of replanted trees, rent received from sub-letting agricultural land, income from growing flowers and creepers, and the share of profit of a partner from a firm engaged in agricultural operations.