Agricultural Income and the Income Tax Bill 2025: What Farmers and Landowners Need to Know
Rural Roots, Urban Rules
The Income Tax Bill 2025, presented by Finance Minister Nirmala Sitharaman, marks the most comprehensive reform of India’s tax laws in over 65 years. One of the most pivotal aspects of this bill is the redefinition and taxation of agricultural income, a subject that has long been the focus of both policy support and controversy.
In a country where over half the population depends on agriculture, the government faces the challenge of protecting genuine farmers while curbing the misuse of agricultural exemptions by non-agricultural entities. This blog unpacks the key changes, contrasts them with the existing Income Tax Act of 1961, and explains how the new provisions will affect various stakeholders in the agricultural sector.
🧾 Agricultural Income – The Refined Definition
Under the Income Tax Bill 2025, the government retains the core exemptions for genuine agricultural activities, while providing a clearer, structured definition of what qualifies as agricultural income.
✅ Still Tax-Free:
- Income from cultivating crops, fruits, and vegetables.
- Basic processing required to make produce marketable (like drying or cleaning).
- Rent or revenue from rural agricultural land used for agricultural purposes.
- Income from buildings (like farmhouses or storage sheds) directly tied to agricultural use.
- Traditional nursery operations producing saplings and seedlings.
❌ Now Taxable (or Confirmed as Taxable):
- Income from dairy, poultry, and fisheries – reclassified as non-agricultural business income.
- Advanced processing of produce (e.g., turning wheat into flour or making packaged food products).
- Income from commercial nurseries with large-scale operations.
- Urban agricultural land:
- Already classified as a capital asset under the existing Income Tax Act, 1961.
- Income from sale or rent of such land is taxable, and this treatment continues unchanged.
🔍 Urban Agricultural Land – Clarified, Not Changed
Contrary to popular belief, the sale of urban agricultural land has always been taxable under the Income Tax Act, 1961. The Income Tax Bill 2025 retains this rule.
- As per Section 2(14) of the 1961 Act, urban agricultural land is a capital asset.
- Any capital gains from its sale are taxable.
- Rental income from such land is also taxable, as it doesn’t fall under the agricultural income exemption of Section 10(1).
🔄 Comparison Table: Income Tax Act 1961 vs. Income Tax Bill 2025
| Aspect | IT Act 1961 | Income Tax Bill 2025 |
| Definition Style | Paragraph-based, legal jargon-heavy | Tabular format, easy to understand |
| Urban Agricultural Land | Already taxable as capital asset | No change – remains taxable |
| Dairy, Poultry, Fisheries | Ambiguously treated, sometimes claimed as exempt | Clearly taxable as business income |
| Advanced Produce Processing | Often claimed as exempt | Clearly taxable |
| Commercial Nurseries | Exempt | Taxable if large-scale |
| Small Traditional Farming | Exempt | Continues to be exempt |
| Documentation Requirements | Limited | Stricter compliance and record-keeping |
| High-Income Farming Enterprises | No distinction | Tiered system – large operators may be taxed. |
📚 Case Snapshots: Real-World Impact
1️⃣ Munna Kumar Singh – Small Farmer
Owns 5 acres in rural Bihar, earns ₹3 lakh/year from paddy and wheat.
➡️ Fully exempt under both laws. No impact.
2️⃣ Jeevan Babu – Urban Landowner
Owns land near Bengaluru city limits, earns ₹6 lakh/year in lease income.
➡️ Already taxable under current law. No change.
3️⃣ Ajooba Singh– Dairy Entrepreneur
Runs a dairy with 50 cows, earns ₹15 lakh/year.
➡️ Was partially tax-exempt earlier. Now fully taxable as business income.
4️⃣ Sudha Devi – Salaried & Agricultural Income
Salary ₹5 lakh + Agricultural income ₹5 lakh.
➡️ Agri income is exempt but affects her slab rate. Tax calculation uses partial integration.
⚖️ Conclusion: A Balanced Overhaul
The Income Tax Bill 2025 strikes a balance between:
- Preserving the tax-free status of traditional, small-scale farming.
- Introducing accountability and tax obligations for large agri-businesses.
- Closing loopholes that allowed high-income individuals to exploit agri exemptions.
With better formatting, simplified language, and modern compliance norms, the bill makes agricultural taxation fairer, clearer, and more relevant to India’s evolving economy.
As the law is set to come into force from FY 2026–27, it’s crucial for farmers, landowners, agri-entrepreneurs, and tax professionals to understand and adapt to the new framework.
📢 Have Thoughts on These Reforms?
Join the conversation. Are these changes fair or burdensome? Share your views in the comments or connect with us for expert insights.
