Are agricultural export earnings taxable in India

As per Section 10(1) of the Income Tax Act, 1961, agricultural income is exempted from taxation. The central government cannot levy tax on the agricultural income received. However, agricultural income is considered for rate purposes while assessing the income tax liability if the following two conditions are met:

  • Net agricultural income is greater than Rs. 5,000/- for previous year.

  • Total income, excluding net agricultural income, surpasses the basic exemption limit (Rs. 2,50,000 for individuals below 60 years of age and Rs. 3,00,000 for individuals above 60 years of age).

If these two conditions are met, tax liability shall be computed in the following manner:

Step 1: Let us regard agricultural income as X and other income as Y Tax computed on X+Y is B1

Step 2: Let us regard basic exemption slab for income tax payment as A Tax computed on A+X is B2

Step 3: The actual income tax liability shall be B1-B2

Note: If the individual’s aggregate agricultural income is up to Rs. 5,000, the individual will have to disclose the agricultural income in the income tax return (ITR). In case the agricultural income crosses Rs. 5,000, the individual will have to disclose the agricultural income in ITR 2.

Section 54B of the Income Tax Act, 1961

Section 54B of the Income Tax Act, 1961, provides relief to taxpayers who sell their agricultural land and use the sale proceeds to acquire another agricultural land. To claim tax benefit under Section 54B of the Income Tax Act, the following conditions will have to be satisfied:

  • This benefit can only be claimed by an individual or a HUF

  • The agricultural land should be used by the individual or his or her parents for agricultural purpose for at least two years immediately preceding the date on which the exchange of land occurred. In case of HUF, the land should be used by any member of HUF.

  • The taxpayer should purchase another agricultural land within two years from the date of selling the old land. In case it is an incident of compulsory acquisition, the period of acquiring new agricultural land will be assessed from the date of receipt of compensation. It must be noted that under Section 10(37), capital gain shall not be chargeable to tax if agricultural land is compulsorily acquired under any law, and the consideration of which is approved by the central government or banking regulator and received on or after 01-04-2004.