On agriculture income tax, the short answer is that income from farming land in India is exempt under section 10(1) of the 1961 Act, so no tax is charged on it directly. But if you also have other taxable income above the basic exemption limit and farm income above ₹5,000, the farm income is added in to decide the rate on your other income.
That method is called partial integration. This guide covers FY 2025-26, filed in AY 2026-27, plus the rules on rural farmland and the move to Schedule II of the 2025 Act for tax year 2026-27. The deductions and exemptions hub lists other tax-free items.
Quick facts
Exemption
Section 10(1), 1961 ActDefinition
Section 2(1A)Rate effect
Partial integration when farm income is above ₹5,000 and other income above the basic limitReturn form
ITR-1 only if farm income is up to ₹5,000; above that ITR-2 or ITR-3Rural farmland
Not a capital asset, so no capital gains on saleUnder the 2025 Act
Exempt through section 11 read with Schedule II
What is agricultural income in income tax
- Rent or revenue from agricultural land in India, such as lease rent paid in cash or crop share by a tenant farmer.
- Income from growing crops and selling the produce in the form a farmer normally sells it.
- Income from processes that make the produce fit for market, such as threshing, drying or cleaning.
- Income from a farmhouse on or near the land, used by the cultivator, if the conditions on location are met.
- Income from saplings or seedlings grown in a nursery.
Not covered: dairy, poultry, fisheries, buying produce and reselling it, interest on a loan to a farmer, and dividends from a company that does farming. These are taxed under the normal heads of income. Land outside India also does not qualify.
Is agricultural income fully exempted from income tax
The farm income itself is never taxed. What changes is the rate on your other income. For an individual, HUF, AOP or BOI, the farm income is added for rate purposes when both of these are true: net agricultural income is more than ₹5,000, and non-agricultural income is more than the basic exemption limit. Companies and firms do not use this method.
| Net farm income | Other taxable income | Effect |
|---|---|---|
| Up to ₹5,000 | Any amount | Ignored for rate; tax only on other income |
| Above ₹5,000 | Up to the basic exemption limit | No tax |
| Above ₹5,000 | Above the basic exemption limit | Partial integration used to work out tax |
Agriculture income tax worked out step by step
Facts. Suresh, aged 50, files under the old regime for FY 2025-26. Taxable income from his shop is ₹8,00,000 and net income from his orchard is ₹3,00,000.
Step 1. Tax on other income plus farm income, ₹11,00,000: ₹12,500 + ₹1,00,000 + ₹30,000 = ₹1,42,500.
Step 2. Tax on farm income plus the ₹2,50,000 basic limit, ₹5,50,000: ₹12,500 + ₹10,000 = ₹22,500.
Step 3. ₹1,42,500 less ₹22,500 = ₹1,20,000. Add 4% cess of ₹4,800.
Tax payable: ₹1,24,800. Without the orchard, tax on ₹8,00,000 alone would be ₹72,500 plus cess. The orchard is not taxed, but it moves more of the shop income into the 20% and 30% slabs. That is the real tax on agricultural income: indirect, through the rate.
This example uses the old regime slabs. How the new regime treats farm income for rate purposes is a point to confirm with a chartered accountant before filing.
Composite income from tea, coffee and rubber
Where a grower also processes the crop, the rules split the income into a farm part and a business part.
| Activity | Treated as farm income | Taxed as business income |
|---|---|---|
| Tea grown and manufactured | 60% | 40% |
| Coffee grown and cured | 75% | 25% |
| Coffee grown, cured, roasted and ground | 60% | 40% |
| Rubber grown and processed | 65% | 35% |
Rural agricultural land as per income tax
Selling farmland can be tax free too, but only if it is rural agricultural land, because then it is not a capital asset at all. Land is urban, and taxable on sale, if it lies within a municipality or cantonment with a population of 10,000 or more, or within these distances from its limits:
| Population of the municipality | Land is urban if within |
|---|---|
| 10,000 to 1 lakh | 2 km |
| Above 1 lakh up to 10 lakh | 6 km |
| Above 10 lakh | 8 km |
Distances are measured aerially, and population is taken from the last census. Gains on urban farmland follow the capital gains rules, with possible relief under section 54B when another farm is bought.
Filing your return when you have farm income
- Work out net farm income: gross receipts less cultivation costs such as seeds, labour and fertiliser.
- If it is above ₹5,000, use ITR-2, or ITR-3 where business income is also present. ITR-1 and ITR-4 allow only up to ₹5,000.
- Begin filing on the e-filing portal and fill the exempt income schedule with gross receipts, expenses and land details such as area, district and whether it is owned or leased.
- Let the utility compute tax with partial integration, then check the figure against your own working before you verify.
Mistakes with agricultural income
| Error | Fix |
|---|---|
| Reporting dairy or poultry profit as exempt | Show it as business income |
| Using ITR-1 with ₹2 lakh of farm income | Switch to ITR-2 or ITR-3 |
| Assuming any farmland sale is tax free | Run the distance and population test first |
| Leaving farm income out because it is exempt | Report it; the department compares it with land records and bank credits |
These notes on farm income are general information, not a ruling on your land. Before you file, a CA or the official e-filing site can confirm how it applies to you.
Sources we checked
- Income-tax Act, 1961, sections 2(1A) and 10(1)
- Income-tax Rules, 1962, rules 7A, 7B and 8
- Income-tax Act, 2025, section 11 and Schedule II
Frequently asked questions
Is agriculture income in income tax fully tax free?
The farm income is exempt, but it can raise the rate on your other income through partial integration, when farm income is above ₹5,000 and other income crosses the basic exemption limit.
Do I need to file a return if I only have agricultural income?
If your only income is from farming, it is exempt and a return is not required on that ground alone. Many farmers still file to keep a record, for example for loans.
Is income from a dairy or poultry farm agricultural income?
No. Dairy, poultry and fisheries are not agriculture for tax purposes, so their profit is taxed as business income.
Is sale of rural agricultural land taxable?
No capital gains arise on rural agricultural land, because it is not a capital asset. Land within the municipal limits and distance bands is urban and taxable.
What happens to the farm income exemption under the 2025 Act?
It continues. Farm income earned in tax year 2026-27 is exempt through section 11 read with Schedule II of the Income-tax Act, 2025.