TAX Exemption on Agriculture Income

TAX Exemption on Agriculture Income


Agriculture income is not liable to tax in India. It is an exempt income. It means any amount received from agriculture as source of income will be exempt from tax. But what is agricultural Income this is question most of us think?

Section 2 (1A) of the Income tax Act details out the conditions wherein sources can be considered to be generating agriculture income. The section’s definitions basically point out the following as the sources for agriculture income –

  1. Revenue generated through rent or lease of a land in India that is used for agricultural purposes

  2. Revenue generated through the commercial sale of produce gained from an agricultural land

3. Revenue generated through the renting or leasing of buildings in and around the agricultural land subject to the following conditions

    • The cultivator or farmer should have occupied the building, either through rent or revenue

    • The building is used as a residential place, storeroom or outhouse

    • The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed

A few exclusions to this income will be as follows –

  1. Revenue from sale of processed produce of agricultural nature without actual agricultural activity

  2. Revenue from extremely processed produce

  3. Revenue from trees that have been sold as timber


Key points to remember while considering if an income is actually a valid agricultural income –

  1. Income should be from an existent piece of land

  2. Income should be from a piece of land that is used for agricultural operations

  3. Income should stem from produce achieved after cultivation of the land

  4. Income can be from a land that is not under the asses-see's ownership


Now government is monitoring all the cash deposits and cash transactions very strictly. The reason being lot of black money or undisclosed money is being converted as legal income. The accounts having heavy flow of transactions are being monitored. Any account having transaction in excess of Rs 2.5 lakhs as deposits will be tracked. Deposits below taxable income limit will not be scrutinized.

As agricultural limit is exempt from taxation any amount can be freely deposited in cash in accounts, but again deposits should not be in excess of income earned. Since farmer’s genuine income is not taxable hence they should not worry about depositing old currency in their bank accounts. The department will do matching of it with income tax return filed by the depositors. And suitable action may follow.

Even though agricultural income is not taxable but any disproportionately large amount of cash deposits will come under scrutiny. When any person carrying on agricultural activities makes an unusually huge amount of cash deposits, the land holdings and expected yield from the land will be checked against the deposits made by the individual to verify the source of the income from agricultural activities. This move has been made to prevent individuals trying to pass off income from non-agricultural activities as agricultural activities so as to avoid paying tax on the income.

Thus after demonetization where people are flocking in banks to exchange old currency and time of deadline also approaching near, the Income Tax department will scrutinize deposits in excess of the limit of Rs 2.50 lakhs. The farmers are also standing for such exchanges of currency. Thus, any amount in excess of the limit will come under the lens of scrutiny and explanations have to be given for unmatched items of income and deposits.