Computation of Tax on Income from Agricultural Land AY 2026-27

Introduction
Income from agricultural land is exempt under Section 10(1) . However, if agricultural income exceeds Rs. 5,000 and non-agricultural income surpasses the exemption limit, partial integration applies to calculate tax liability. Gains from transferring rural agricultural land are tax-exempt; urban agricultural land gains are taxable.

Exemptions

• Agricultural Income: Exempt under Section 10(1) ; losses cannot be set off or carried forward.
• Capital Gains:
  • Rural agricultural land is excluded from capital assets ( Section 2(14) ).
  • Agricultural land is considered rural if it is outside a municipality/cantonment board with a population of 10,000+ and lies beyond these aerial distances:
    • (a) 2 km if population is 10,001-1,00,000
    • (b) 6 km if population is 1,00,001-10,00,000
    • (c) 8 km if population is above 10,00,000
• Partial Integration
  • Applicable if agricultural income exceeds Rs. 5,000 and non-agricultural income surpasses the exemption limit and the taxpayer is an individual, HUF, BOI, AOP or an Artificial Juridical Person;
  • Tax calculation under partial integration:
    1. Compute net agricultural income.
    2. Compute tax on (non-agricultural income + agricultural income) as if total income.
    3. Compute tax on (agricultural income + basic exemption limit) as if total income.
    4. The amount of tax calculated in (b) shall be reduced by the amount of tax calculated in (c).
    5. The result of (d) shall be reduced by rebate under section 87A (if any), then add surcharge + cess.
    6. Result = final tax payable.
• Agricultural Income Computation
  • Rent or Revenue: Agricultural income, being rent or revenue from agricultural land in India, is computed in the same way as income from other sources.
  • Income from Agriculture: Agricultural income derived from land in India or from any agricultural process is computed in the same manner as business income.
  • Farm Building Income: Agricultural income from a farm building used as a dwelling house is computed in the same manner as income from house property.
• Mixed Income (Agriculture & Business)
  • If an entity carries both agricultural and non-agricultural activities, profits are split between the two on a presumptive basis:

• Other Provisions
  • Set-off and Carry Forward: Agricultural losses are set off only against agricultural income within eight years. Losses due to succession otherwise than by inheritance, can only be set off by a person who has incurred such losses.
  • Tax Deduction: If the net result of the computation of agricultural income results in a loss, it is ignored and taken as nil.