A person can generate both agricultural and non-agricultural income from agricultural land, according to tax legislation. We examine the activities that qualify for each and the taxation of such revenue. Because India is primarily an agrarian economy, agricultural income earners receive a variety of benefits and incentives. India’s income tax regulations, for example, exclude farmers from paying any tax on their agricultural revenue.

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In India, states are responsible for taxing agricultural income, as the Union List’s Seventh Schedule, Entry 82, specifies taxes other than agricultural revenue, but the state list’s Entry 46 lists agricultural income taxes. Agricultural income is define as rent/revenue from land, income gained from this land via agriculture, and income received from structures on that property under Section 2 (1A) of the Income Tax Act. Agricultural revenue is excluded from total income computation under Section 10 (1) of the tax code.

There has been considerable discussion over the advantages of exempting an infinite amount of agricultural revenue from taxation. Those opposed to the idea claim that keeping agricultural revenue completely tax-free encourages wealthy landowners to take advantage of the system’s flaws.

However, not all revenue from farmland investments is considere agricultural income. As a result, the owner must pay taxes on it. It’s important to understand the distinction between agricultural and non-agricultural revenues.

Definition and meaning of agricultural income

The Income Tax (IT) Act of 1961, Section 2(1A), defines agricultural income and divides it into three categories.

Agribusiness land rents or generates money

Farmers can produce rent or cash from their agricultural property in a variety of ways. Allowing farmers to utilise their property on a lease basis for farming is a frequent technique for landlords in India to generate money from agricultural land. These earnings will not be taxed because of Section 10(1), which specifies that agricultural income obtained by a tax payer in India is tax-free.

To be eligible for the rewards, agricultural activity must be carried out on the property. In order to get the benefit, the farmer must also verify his ownership of the property.

Income generated by land

Because the human labour involved in growing crops is particularly important, revenue earned via agricultural enterprises is also tax-free. Agricultural operation refers to the efforts made to grow crops on a piece of land and the steps needed to make the output marketable. These include, in general:

• The cultivation of land
• Agricultural work
• Planting seeds
• Planting
• Weeding
• Tending
• Pruning
• Cutting
• Harvesting

It’s worth noting that in order to claim tax exemption, the owner must also be the cultivator.

Farm building income is essential for agricultural activities.

According to the tax regulations, house owners must pay tax on the yearly value of their immovable assets under the heading “Income from house property.” Residences, outhouses, farmhouses, and any other units located near an owner’s agricultural property are free from paying any tax. However, distance plays a significant factor in determining whether or not a structure is tax free.

• The land shall not be within the authority of a municipality with less than 10,000 residents.
• municipality with a population of 10,000 to 1 lakh should be at least two kilometres distant from the land.
• A municipality with a population of 1 to 10 lakhs should be at least six kilometres distant from the land.
• A municipality with a population of above 10 lakhs must be at least eight kilometres distant from the land.

Revenue from saplings or seedlings produced in a nursery There is no tax responsibility on income obtain from the sale of nursery-grown items if:

• The local government must assess the land revenue.
• The land should not be located in a municipality or cantonment board where the revenue is not assessed or subject to a local rate.

Nonagricultural earnings

As previously stated, certain agricultural-related activity and the revenue generated are classified as non-agricultural income and are thus taxed.

When agricultural output is heavily processe to make it marketable, the end product is classified as non-agricultural. For example, tea, coffee, and rubber manufacture. Additionally, if a farmer sells processed goods without engaging in any agricultural or processing operations, the money is classified as business income.

Livestock breeding on agricultural land includes dairy animals, fisheries, and poultry production.

Tree plantation: Because no active agricultural operation has been finish during the entire process, trees planted on farmland only for the purpose of timber fall into the non-agriculture category.

Trading: Those who make a living by trading agricultural products must pay ordinary income taxes.

If specific requirements are met, income derive from the export of agricultural products may be free from IT.

Agriculture income is tax.

If a farmer earns both agricultural and non-agricultural income, he must figure out how much of each is tax. Only if his net agricultural income exceeds Rs 5,000 throughout the year and his non-agricultural income exceeds the maximum amount not subject to tax under the tax slab would he be require to do so.

Individuals under the age of 60 should have non-agricultural income of more than Rs 2.50 lakhs. For farmers aged 60 to 80 years, it should be more than Rs 3 lakhs. Non-agricultural income must exceed Rs 5 lakhs for those above the age of 80 to be tax.

Tax liability calculation formula

The farmer must first subtract agricultural revenue from overall income to arrive at taxable income.

Consider a farmer who is 50 years old and earns Rs 5 lakhs per year. Agricultural revenue accounts for Rs 40,000, while non-agricultural income accounts for the remainder.

Rs 5 lakhs minus Rs 40,000 equals Rs 4.60 lakhs.

The farmer is entitled to a Rs 2.50 lakh exemption on his annual income due to his age.

Rs 4.60 lakhs – Rs 2.50 lakhs = Rs 2.10 lakhs taxable income

The farmer will have to pay 5% of the leftover amount in tax under the current slab.

Tax on agricultural land sales

If the farmer sells his agricultural land for compensation, he will be subject to capital gains tax. If the land is being purchase by the government, however, there is no tax responsibility.

NRI land sales in India

The Supreme Court (SC) has held that non-resident Indians (NRIs) who possess land or any other sort of immovable property in India must first get approval from the banking regulator, the RBI, before proceeding with the sale.

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