Agricultural Income Is Exempt, But With Conditions
Genuine agricultural income in India is exempt from income tax under Section 10(1) of the Income Tax Act, and this exemption applies to residents and NRIs alike. Agricultural income means income from cultivating the land, from the sale of produce, and from rent or revenue derived from agricultural land used for agricultural purposes.
What Is Not Treated as Agricultural Income
- Capital gains on the sale of agricultural land (where taxable) are not agricultural income. Rural agricultural land outside specified municipal limits is not a capital asset, so its sale is generally exempt; land within those limits is taxable as capital gains.
- Income from allied activities like poultry, dairy, fishing or processing beyond the basic ordinary process is usually treated as business income, not agricultural income.
- Interest earned on sale proceeds parked in a bank account is taxable.
Do NRIs Have to Report Agricultural Income?
Even though it is exempt, you should disclose agricultural income in your return (it is used for rate-aggregation purposes for residents, and disclosure keeps your records clean). For NRIs, any taxable Indian income, such as capital gains on urban agricultural land, rent that does not qualify as agricultural, or interest, must be reported and tax paid in India.
TDS and the DTAA
When an NRI sells property, the buyer is required to deduct TDS at the applicable rate on the sale consideration or the gains. You can apply for a lower or nil deduction certificate if your actual liability is lower. India has Double Taxation Avoidance Agreements (DTAAs) with most countries where the diaspora lives, so tax paid in India can usually be credited against your liability in your country of residence. A chartered accountant should handle the cross-border position.
This page is general information, not tax advice. Confirm your specific case with a qualified chartered accountant. Related: NRI land ownership rules and the main NRI guide.