Income from agriculture: Overview, taxation, computation, and more

As the name implies, partially agricultural income is the kind of income that doesn’t just come from farming. It is not subject to the same taxes as agricultural income because it is not solely reliant on cultivation. What precisely is income from agriculture, and how is it taxed? How should tax returns for partial agricultural income be filed? 

Most of its people work in agriculture or related fields and have a thriving agricultural economy. Farmers receive tax breaks and other benefits from the government as a means of encouraging the agricultural sector. However, it is essential to know the difference between income from agriculture and revenue from partially agricultural sources before moving on to tax rebates. 

Income derived partially from agriculture: A summary

The term “partially agricultural income” describes revenue derived from related but not wholly reliant activities in agriculture. This idea is essential to India, where the economy relies heavily on agriculture.

Daily farming income is one type of partial agricultural income. Raising cattle and selling milk and milk products are two aspects of dairy farming. It is associated with agriculture because it needs land for gazing and the growth of fodder. It is not exclusively reliant on agriculture because it also involves other activities like the processing of milk and the care of animals. 

For those engaging in such activities to comply with tax laws and make wise financial decisions, they must comprehend the notion of partially agricultural income. 

How is income from agriculture taxed partially? 

The taxation of income derived partially from agriculture in India is contingent upon several factors. 

Differentiating between income from agriculture and non-agriculture

It is critical to divide the income into components related to agriculture and non-agriculture. The Indian Income Tax exempts agricultural income from taxation. Non-agricultural income, on the other hand, is taxable as per the applicable tax rates. 

Calculating the revenue from agriculture

The nature of agricultural activities, such as land cultivation, crop growth, dairy farming, poultry farming, etc., is considered when determining agricultural income. These activities yield income that fails under agricultural income. 

Revenue from agriculture that is partially subject to tax 

The regular income tax slabs apply to the non-agricultural portion of the income from a partially agricultural source. There are still no taxes on the agricultural portion. 

Keeping accurate records

Accurate records and documentation are necessary to differentiate between earnings from agriculture and non-agriculture. It facilitates the precise computation and disclosure of taxable income. 

Income from agriculture: Which ITR should I file? 

Which Income Tax Return (ITR) form to file if you receive agricultural income is probably on your mind. The total cash earned during the fiscal year determines which ITR form is appropriate for agricultural income. 

  • ITR-1 (Sahaj): If your total income from agricultural activities does not exceed Rs 5,000, you are eligible to file an ITR-1. This form is appropriate for people who make money from wages, real estate, and other sources outside of agriculture. 
  • ITR-2: You must file an ITR-2 if your capital gains or agriculture surpasses Rs 5,000. Individuals and Hindu Undivided Families (HUFs) who receive income from other sources besides farming are also eligible to use this form. No matter how much your agricultural income exceeds Rs 5,000, report it on the “Schedule El” listed under ITR 2. 

It is significant to remember that in India, income from agriculture is exempt from income tax up to Rs 5,000. To be transparent with the tax authorities, you must report the income from agriculture on your ITR form. 

Income from agriculture: Is agricultural income reported in ITR-1? 

By following these steps, you can ensure that your agricultural income appears in your ITR: 

Step 1: Determine your income from agriculture and non-agriculture. 

You must determine the total amount of money received from agricultural activities to report agricultural income in ITR-1. It can include the money from buying or selling an agricultural product, including crops and livestock. The following table illustrates the calculation of tax liability for agricultural and non-agricultural income. 

Step 2: Include both agricultural and non-agricultural revenue in your ITR. 

In the “Income Details” section of the ITR-1 form, there is a dedicated field for entering agricultural income. Fill in the details of your agricultural income accurately. 

Step 3: Present corroborating documentation 

When filing your ITR 1, you must have the supporting documentation for your agricultural income. These may include purchase invoices, sale receipts, and other pertinent documents.

Filing your taxes should be simpler now that you know about the tax ramifications of partially agricultural income. For professional advice and to confirm the accuracy of your financial data, you should speak with a tax advisor or chartered accountant. You should capitalize on these opportunities to lower your tax liability by working with a professional to find appropriate solutions.