Agricultural income in India refers to the money earned from farming or related activities. According to the Income Tax Act, this type of income is not taxed by the central government. That means if you earn money only through farming, you don’t have to pay income tax on it.
What Is Agricultural Income?
Agricultural income is the money you earn from land used for growing crops or from activities linked directly to farming. This includes:
- Growing crops like wheat, rice, or vegetables.
- Selling fruits, flowers, or plants.
- Renting out farmland for agriculture.
- Income from a farmhouse, if it’s used for agriculture.
Simple Example:
If Ramesh grows mangoes on his farm and sells them in the market, the money he earns is called agricultural income. He doesn’t need to pay income tax on it.
Types of Agricultural Income
There are mainly three types of agricultural income as per Indian tax laws:
- Income from Sale of Agricultural Produce
This is the money earned by selling crops or plants grown on agricultural land.
Example: Selling rice, wheat, sugarcane, vegetables, or flowers. - Income from Rent or Lease of Farmland
If you own farmland and rent it to someone else for farming, the rent you receive is also considered agricultural income.
Example: Leasing your land to a neighbor who grows onions on it. - Income from Farm Buildings
If you have a building like a farmhouse that’s used for storing produce or housing farm workers, the rent earned from it is agricultural income—only if it’s near the farm.
Example: Renting a storage shed on your farm to another farmer.
How Is Agricultural Income Calculated?
Agricultural income is calculated like regular income, but it’s not taxed under normal income tax rules. However, it may be used for calculating your tax rate if your non-agricultural income is above a certain limit.
Here’s how the calculation works:
Step 1: Calculate your total agricultural income.
Add up all the money earned from crops, rent from farm buildings, and leased land.
Step 2: Add it to your other income (like salary or business income).
This step is only needed if:
- Your non-agricultural income is more than ₹2.5 lakhs (for individuals under 60 years), and
- Your agricultural income is more than ₹5,000.
Step 3: Use the combined income to find your tax rate.
The government uses a method called partial integration to decide your tax slab. But remember, agricultural income itself is still not taxed.
Simple Example:
- Priya earns ₹3 lakhs from a job and ₹2 lakhs from farming.
- Since her job income is above ₹2.5 lakhs and farming income is above ₹5,000, her tax will be calculated using both.
- But only her salary is taxed — the farming money just affects the rate.
What Is Not Considered Agricultural Income?
Some income might look like it’s from farming but doesn’t qualify as agricultural income. These include:
- Processing of crops that goes beyond basic methods (like making chips from potatoes).
- Income from poultry or dairy farming.
- Selling trees or timber (unless they’re grown on agricultural land).
- Running nurseries not attached to farmland.
Tip: If you’re unsure, think: “Did this income come directly from soil or land used for farming?” If yes, it’s probably agricultural income.
Why Is Agricultural Income Tax-Free?
Agriculture is a state subject in India. That means each state government handles farming-related matters, including tax. The central government cannot tax agricultural income. This rule helps protect small farmers and support the farming community.
Key Points to Remember
- Agricultural income is not taxed by the central government.
- It includes income from crops, farmland rent, and certain farm buildings.
- If you have other income, your agricultural earnings may affect your tax rate.
- Income from poultry, dairy, or processed goods is not agricultural income.
Summary
| Income Source | Agricultural Income? | Taxable? |
|---|---|---|
| Selling wheat from your farm | ✅ Yes | ❌ No |
| Rent from a farmhouse on farmland | ✅ Yes | ❌ No |
| Salary from a company | ❌ No | ✅ Yes |
| Dairy or poultry farming | ❌ No | ✅ Yes |
| Selling mango juice (processed) | ❌ No | ✅ Yes |
Final Words
Agricultural income in India is important and protected. Knowing what counts as agricultural income helps you stay compliant and make the most of tax benefits. Whether you’re a farmer or just leasing land, understanding this can save you money and confusion.
