What is Agricultural Income?
The term “Agricultural Income” is defined in three parts under IT Act u/s 2(1A)(a), 2(1A)(b), 2(1A)(c) as given below:
- Income From Leasing Out Of Agricultural Land Section 2(1A)(a) – If any person has given any agricultural land on rent, and the rent received either in cash or kind shall be considered to be agricultural income and shall be exempt from income tax. However, if any interest is recovered for late payment of rent then such interest will be taxable under head other sources.
- Income From Agricultural Operations Section 2(1A)(b) – If any person is engaged in agricultural activities, income derived from such agricultural operations shall be considered to be agricultural income.
- Section 2(1A)(c) – Any income derived from any building provided all the following conditions are satisfied.
- The building is on or in the immediate vicinity of agricultural land.
- It is occupied by the cultivator or receiver of rent or revenue.
- It is used as a dwelling house or as a store house or other out-house.
- The land is assessed to land revenue or it is situated in rural areas.
Key Takeaways
| Exemption | Agricultural income is exempted from direct income tax. |
| Other Income Matters | If you have other income, agricultural earnings can increase your tax slab. |
| Documentation | Keep records (like land ownership proof or sale receipts) to claim the exemption. |
| State Rules | Some states may levy their own agricultural tax—check locally. |
| Limits | Agricultural income above ₹5,000 needs to be reported in your tax return, even if it’s exempt. |
Tax on Agricultural Income
If you have only agricultural income, then you are exempted u/s 10(1) of the Income Tax Act, 1961. But you can can file the ITR by showing exempt income.
If you have both agriculture income and non agriculture income where agricultural income exceeds ₹5,000 and your non-agricultural income exceeds the basic exemption limit then you need to compute tax liability.
Formula
| First – Calculate Tax on Total Income [ Agriculture + Non Agriculture] Second – Calculate Tax on Agri Income + Basic Exemption Limit. Tax – Subtract the tax from the Second Step from the tax in the First Step |
Which ITR From To Choose?
If you have only agricultural income up to ₹5,000, you can select ITR-1.
Including Agriculture + Non Agriculture, you can select:
- ITR-2 : Salary + Interest Income + Capital Gain + Agricultural Income.
- ITR-3 : Business Income + Interest Income + Capital Gain + Agricultural Income.
What is Rule 8?
Rule 8 deals with how a person being assessed for tax can use losses from agricultural income in previous years to offset their agricultural income in a later year.
Setting Off Losses for Assessment Year 2025-26
Rule 8(1) explains how agricultural losses incurred from previous years can be used to offset agricultural income in the year starting April 1, 2025.
If you have agricultural income in the FY 2024-25 (relevant to the assessment year 2025-26) and you had losses in agricultural income in any of the previous years, you can use those losses to reduce your taxable agricultural income for AY 2025-26.
Which Losses Can Be Set Off?
The losses from the previous years can be carried forward and set off, but only such losses that has not been set off against the agricultural income in earlier years:
| Assessment Year | Loss not yet set off against agricultural income from |
| AY 2017-18 | AY 2018-19 to AY 2024-25 |
| AY 2018-19 | AY 2019-20 to AY 2024-25 |
| AY 2019-20 | AY 2020-21 to AY 2024-25 |
| AY 2020-21 | AY 2021-22 to AY 2024-25 |
| AY 2021-22 | AY 2022-23 to AY 2024-25 |
| AY 2022-23 | AY 2023-24 to AY 2024-25 |
| AY 2023-24 | AY 2024-25 |
| AY 2024-25 | Loss can be directly computed in AY 2025-26 |
Setting Off Losses for Assessment Year 2026-27
This section is similar but applies to the next year, starting from 1st April 2026. It follows a similar structure to Sub-Rule (1) but extends the carry-forward period by one year.
If you have agricultural income in the FY 2025-26 (relevant to the assessment year 2026-27) and losses from agricultural income in any of the years from 2017-18 to 2024-25, you can use those losses to reduce your agricultural income for AY 2026-27.
Which Losses Can Be Used?
The losses from earlier years can be carried forward and set off, if losses have not already been adjusted in prior years:
- AY 2018-19: Loss not yet set off against agricultural income from AY 2019-20 to AY 2025-26.
- AY 2019-20: Loss not yet set off against agricultural income from AY 2020-21 to AY 2025-26.
- AY 2020-21: Loss not yet set off against agricultural income from AY 2021-22 to AY 2025-26.
- AY 2021-22: Loss not yet set off against agricultural income from AY 2022-23 to AY 2025-26.
- AY 2022-23: Loss not yet set off against agricultural income from AY 2023-24 to AY 2025-26.
- AY 2023-24: Loss not yet set off against agricultural income from AY 2024-25 to AY 2025-26.
- AY 2024-25: Loss not yet set off against agricultural income from AY 2025-26.
- AY 2025-26: Losses from this year can also be used.
Restrictions on Claiming Losses
Only the assessee incurring the loss can claim the set-off, successors cannot claim it.
Succession Rule
If someone else takes over your agricultural income source (such as- selling or transferring) the new person cannot use your past losses to offset their income.
Only the person who originally incurred the loss can use it.
For example, if you had a loss in AY 2019-20 and sold your farm in 2023, the buyer can’t use your 2019-20 loss in later year.
Conclusion
Agricultural income in India benefits from a unique tax-exempt status under the Income Tax Act, reflecting its importance to the nation’s economy.
However, through partial integration, it can still affect your overall tax liability when combined with non-agricultural earnings.
Understanding these rules allows farmers, landowners, and investors to optimize their tax obligations while remaining compliant.