Tax on Farmers: India is an agricultural country where crores of people depend on farming to earn their livelihood. But when it comes to taxes, the question often arises in the minds of people whether farmers also have to pay income tax on their earnings. The common perception is that income from farming is completely tax-free. However, the reality is slightly different, and in some circumstances, farmers may also have to pay tax. Therefore, it is very important to understand what rules the government has made regarding taxes for farmers and under what circumstances taxes may have to be paid.
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Income Tax Act 1961 and Agricultural Income
The Government of India has given a big relief to the farmers and has kept agricultural income completely tax-free under Section 10(1) of the Income Tax Act 1961. That is, if a person earns only from farming, such as by selling crops, vegetables, or grains, then no tax has to be paid on that income. The government believes that farming is dependent on weather and natural conditions, and there is a big risk involved in it, so the income of farmers has been kept out of the scope of taxation.
When may one have to pay tax?
There is indeed no tax on income from farming, but this exemption does not apply in every situation. If the farmer’s income comes only from sources other than farming, then tax may be levied. For example, if the farmer’s non-agricultural income is more than Rs 2.5 lakh annually, then it may be mandatory for him to file an income tax return.
Under what circumstances is tax applicable?
- If a farmer sells agricultural land located in the city, then capital gain tax may apply to him.
- If farming is run like a business, such as contract farming, processing unit, or large-scale commercial farming, then his income will be considered business income, and tax will be levied on it.
- Tax liability can also arise if income comes from dairy, poultry, property rent, or other sources.
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Is it necessary for every farmer to file an ITR?
If a person’s entire income is from farming only and he has no other income source, then he does not need to file an income tax return. But as soon as income from non-agricultural sources is added and it reaches above the tax slab, filing ITR becomes mandatory.