Can you enjoy tax-free income from your home garden?
Source: Live Mint
Agricultural income is exempt from taxation, but what if you don’t own a farmland in a rural area? If you manage a home garden in a city and sell some of your produce, can this income still qualify as agricultural income? Here’s what tax experts say.
Cultivation on land not mandatory
The definition of agricultural income includes income derived from land used for agricultural purposes, said Gautam Nayak, partner at CNK & Associates.
“There have been judgments which have allowed income from cultivation in a nursery, where the cultivation was done in pots and not on the ground, to be considered as agriculture income. In effect, the produce – vegetables or fruits – should be cultivated on soil,” said Nayak added.
This means the land itself is not a pre-requisite for determination of agricultural income.
A special bench of the Income Tax Appellate Tribunal in 2018, while adjudicating on a matter, said, “If the strict interpretation, as argued by revenue’s counsel is accepted then, when ‘soil’ attached to earth is cultivated, it is agricultural activity and when ‘soil’ is cultivated after detaching the same from earth, it is not agricultural activity. Such an interpretation would be unintended and unfair.”
“The only part of the land that is cultivable, and which is useful for agricultural activity is ‘soil’ which is the top layer of land. Then whether such soil is attached to land or is placed in containers above the land should not make a difference,” the bench said.
Nayak said other methods of growing vegetables may be difficult to qualify as agriculture income. “For instance, growing vegetables using hydroponics may not qualify as agriculture income, just as aquaculture does not so qualify,” he said.
Also Read: Indian agriculture needs support. Reform farm prices at the very least.
What else qualifies as agricultural income?
“Income from growing fruits, flowers, creepers, or commercial crops like tobacco, cotton, betel, areca nut or medicinal produces like cardamom, pepper is also considered agricultural income,” said Prakash Hegde, Bengaluru-based chartered accountant.
However, courts have ruled that income from dairy farming, poultry farming, and livestock breeding does not fall under agricultural income.
“As per the income tax rules, a certain percentage of income from rubber, tea, and coffee is deemed as agricultural income, and the remaining portion is treated as non-agricultural income,” Hegde said.
Also read: Can gifting assets to family members enhance tax-efficiency?
Takeaway
Under certain conditions, net agriculture income, i.e., income post expenses, is added to the overall income to determine the slab rate. This effectively leads to the taxpayer’s non-agricultural income being taxed at a higher slab rate.
That said, if you’re growing vegetables or fruits on your terrace and selling them for extra income, this revenue remains tax-free under the agricultural income exemption.
Also Read: Budget 2025’s top priorities: Farmers, small businesses, consumption, and jobs
