Taxation of Agricultural Income in India

TREATMENT OF PARTLY AGRICULTURAL & PARTLY NON-AGRICULTURAL INCOME:

Example:
Income from farming and rental of agricultural land:
• Agricultural income: Earnings from crop production or animal husbandry.
• Non-agricultural income: Rent received from leasing out agricultural land for commercial purposes like construction or industry.
Income from dairy farming and selling dairy products:
• Agricultural income: Earnings from the sale of milk and dairy products directly from farming.
• Non-agricultural income: Profit from processing or packaging dairy products for retail sale.
Income from a mixed-use farm:
• Agricultural income: Income from the cultivation of crops (e.g., wheat, rice).
• Non-agricultural income: Income from setting up a farm-to-table restaurant or agritourism activities.
Income from poultry farming and selling processed chicken products:
• Agricultural income: Earnings from raising poultry and selling eggs.
• Non-agricultural income: Earnings from processing and selling chicken meat or other value-added products.
Income from growing medicinal plants and selling them for manufacturing:
• Agricultural income: Income from cultivating medicinal herbs.
• Non-agricultural income: Income from selling processed herbal products to pharmaceutical companies or as retail products.
These are examples where agricultural and non-agricultural activities coexist, with both sources of income being derived from the same land or business operation.

TAX TREATMENT OF AGRICULTURAL INCOME IN INDIA

For tax purposes, agricultural income is usually not counted as part of your total income. But there are certain situations where agricultural income is added to your non-agricultural income when calculating taxes:
• Who it applies to: This rule is for individuals, Hindu Undivided Families (HUF), and Associations of Persons (AOP)/Bodies of Individuals (BOI).
• Minimum agricultural income: This rule applies only if your agricultural income is more than Rs. 5,000.
• Minimum total income: Your total income must be higher than the basic exempt limit (Rs. 2,50,000 duals, Rs. 3,00,000 for senior citizens, and Rs. 5,00,000 (all these amounts are divided to the individual super senior citizens)) for the tax to apply.
In simple terms, if your agricultural income is significant and your overall income is above the tax-free limit, both your agricultural and non-agricultural income will be combined for calculating tax.

SECTION 54B OF THE INCOME TAX ACT, 1961

This rule gives a tax break to people who sell their agricultural land and use the money to buy more agricultural land.
Conditions:
• Only individuals or Hindu Undivided Families (HUFs) can use this rule.
• The land being sold must have been used for farming by the individual or their parents for at least two years before the sale.
• The taxpayer must buy another agricultural land within two years of selling the old one.
In simple terms, if you sell farming land and reinvest the money in buying new farming land, you can get some relief from taxes—just make sure to meet the conditions!