Tax on Agricultural Income

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Laxmi Navlani

Agriculture Income
Income Heads
Income Tax
Last updated on January 8th, 2024

In the Union Budget 2023-24 the government has allocated approximately 1.25 lakh crore for agriculture and its welfare scheme in India. It still serves as a primary source of income for about 70% of Indian households. As India is basically an agrarian economy, several incentives and perks are there, for those making a living through agriculture. Farmers are, for instance, exempt from paying any tax on their agricultural income under the income tax laws in India. However, not all income generated from agricultural land qualifies as agricultural income.

What is Agricultural Income?

As per section 2(1A) of the Income Tax Act, 1961, it is defined as follows.

Aerial distance from municipality* Population as per the last preceding census
Within 2 km 10,000 to 1,00,000
Within 6 km 1,00,000 to 10,00,000
Within 8 km > INR 10,00,000

*Municipality includes a municipal corporation, notified area committee, town area committee, town committee, and cantonment board.

Note: Even where the local population is < 10,000, the land should also not be situated within the jurisdiction of the local municipality or cantonment board.

Non-agricultural income

As mentioned earlier, certain agriculture-related works and the income thus generated are categorized as non-agricultural income and are taxable.

Tax on Agricultural Income

Income from agriculture is exempt from tax under section 10(1) of the Income Tax Act, 1961. However, the Income-tax Act has laid down a method to indirectly tax such income. This method or concept may be called as the partial integration of agricultural income with other income. This method is applicable when the following conditions are met:

Calculation of Agricultural Income

In case, Agriculture income exceeds INR 5,000 and there are other sources of income too, then, the tax liability for that year is to be calculated following the procedure as under:


Suppose, a taxpayer has 6,00,000/- as interest income and 3,00,000/- as agriculture income for the A.Y. 2023-24. The computation shall be as follows:

Particulars Amount (INR)
Tax on INR 2,50,000 Nil
Tax on the second 2,50,000 @5% 12,500
Tax on remaining INR 4,00,000 @ 20% 80,000
Total Tax (A) 92,500


Calculate tax on basic exemption limit + agriculture income i.e.

Particulars Amount (INR)
Tax on INR 2,50,000 Nil
Tax on the second INR 2,50,000 @ 5% 12,500
Tax on remaining INR 50,000 @20% 10,000
Total Tax (B) 22,500

The tax liability, in this case, will be INR 70,000 (a-b) i.e.INR 92,500 – INR 22,500

Section 54B: Capital Gain on Transfer of Land used for Agricultural Purpose

Section 54B of the Income Tax Act,1961, provides relief to individuals who sell their agricultural land and buy another agricultural land from that sale. The following conditions must be met in order to claim benefit under section 54B:

Which ITR is applicable for Agricultural Income

If the aggregate agricultural income of the assessee is up to INR 5,000 disclose the same in the income tax return (ITR) 1. But if the agricultural income exceeds INR 5,000, then form ITR 2 applies.

Moreover, if the income from agriculture exceeds INR 5 lakh it is to be reported separately for each agricultural land under the ‘exempt income schedule’ along with additional details such as the name of the district with pin code, measurement of land, whether owned or leased, and whether irrigated or rain-fed.


Is agricultural income wholly exempt from income tax?

If the income of the assessee is less than 5000 and the total income, excluding agriculture income is less than the basic exemption limit then only agricultural income is exempt from income tax.

What is not considered as agricultural income in India?

The following activities are not considered:
1. Breeding of livestock
2. Dairy farming
3. Fisheries
4. Poultry farming

Does the income from the business of growing tea is an agricultural Income?

In the case of growing of tea, 40% of income is taxable as business income and the balance will be exempt as agriculture income.

What if agricultural activities are carried out on urban land?

The agricultural income derived from agricultural operations carried out on urban or rural land is exempt from taxes.

Got Questions? Ask Away!

  1. Hey @riya_gupta

    In such a case, the tax liability for that year is calculated following the procedure as under:

    • Compute income tax on the aggregate income (i.e. agricultural income + other income) as per the prevailing income tax rates.
    • Compute income tax on sum of amount of basic exemption limit plus agriculture income as per the prevailing income tax rates.
    • Now, Compute (1) – (2) to arrive at the tax liability for the year.

    For more details on this, you can refer to this article.