Different states have different policies regarding agricultural income. Only the state government can impose tax on agricultural income. The central government cannot impose tax on any agricultural income. Most agricultural income is not taxed, while some is taxed.
Under the Income Tax Act 1961, tax exemption is available on agricultural income. However, poultry farming, dairy and live stock farming are not considered agricultural income. In such a situation, tax is levied on such activities. Different states have different policies regarding agricultural income. Only the state government can impose tax on agricultural income. The central government cannot impose tax on any agricultural income. Most agricultural income is not taxed, while some is taxed.
What is agricultural income?
If farming is done on agricultural land, then the money received from it is called agricultural income. Under Section 21A of the Income Tax Act, agricultural income is when the land is used for agriculture. If you get rent from a building built on a farm, then that is also agricultural income. However, for this it is necessary that that building should be used for agricultural activities only. The income from that building is not considered agricultural income if it is not being used for agricultural operations.
Income earned from the production of agricultural goods is also called agricultural income. Agricultural goods are those which cannot be sold directly in the market, they require processing before selling. For example, oats cannot be sold directly in the market, before that their husk has to be removed i.e. processing has to be done. Income earned from growing or selling agricultural produce is agricultural income, like the income earned from growing tomatoes is called agricultural income. Income earned from selling agricultural land is also agricultural income. If any agricultural land is acquired by the government, then the money received from it is also agricultural income.
Which income is not considered agricultural income?
Not all states impose tax on agricultural income. There are only a few states which also impose tax on agricultural income. The states that impose tax are Assam, Odisha and West Bengal. The conditions for imposing tax are also different in different states. There is no tax on wheat, paddy, vegetables etc., whereas there is tax on horticulture and plantation in some states, because these are considered commercial crops. If your agricultural income is also low, then you will first have to check what are the rules for taxing agricultural income in the state in which you live. If your agricultural income comes under the ambit of tax, then pay tax accordingly.
On certain agricultural income, tax has to be paid on a fixed portion and exemption is given on the rest. For example, this rule applies in the cultivation of tea, coffee and rubber. For example, in the case of tea, 40 percent of the total agricultural income is taxable, while the remaining 60 percent is tax exempt. On this you have to pay tax according to your slab.
How to file ITR of agricultural income?
There is no tax on agricultural income under the Income Tax Act, but despite this you are required to file income tax return. Filing an income tax return does not mean that your earnings will be taxed or will become taxable. This rule has been made only keeping in mind the need for transparency and documentation of your agricultural income. If your agricultural income is up to Rs 5000, then you can fill ITR-1 form. Whereas if your agricultural income is more than Rs 5000 then you should fill ITR-2 form and Schedule E1 should be filled in it.
