Tax for farmers and agri-businesses in India

Agricultural income is exempt from central income tax under Section 10(1), but partial integration means that where your net agricultural income exceeds Rs 5,000 and you also have non-agricultural income above the basic exemption, the farm income is used to push the slab rate on your taxable income higher, so it is not fully tax-free in effect. Only what you grow from the soil counts as agriculture: dairy, poultry, fishing and processing beyond the ordinary are taxable businesses. For farmer collectives, the producer-company deduction (Section 80PA) ended after AY 2024-25, while the co-operative deduction (Section 80P) survives, so a co-operative now gives better treatment.

Presumptive + GST + TDS at a glance

Presumptive taxation

Section:: Sec 44AD (for taxable agri-business such as dairy/poultry)
Deemed profit rate:: 6% on digital receipts / 8% on other receipts
Classification:: business

GST treatment

Slab:: 5%
SAC:: fresh agricultural produce largely exempt/nil; processed and packaged goods at applicable rate; allied agri-business (dairy, poultry) per product rate
Composition eligible:: Yes
Reverse charge (RCM):: Not applicable

TDS exposure

Last reviewed: 29 May 2026

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Agriculture sits in a special place in Indian tax. Agricultural income is exempt from central income tax under Section 10(1), but it is not fully free: under partial integration, if your net agricultural income exceeds Rs 5,000 and you also have non-agricultural income above the basic exemption, the farm income is used to push the slab rate on your taxable income higher. Two further points catch people out. Only what you grow from the soil counts as agriculture, dairy, poultry, fishing and processing beyond the ordinary are taxable businesses. And for farmer collectives, the producer-company holiday (Section 80PA) has ended, while the co-operative deduction (Section 80P) survives.

What business structure do farmers and agri-businesses use?

The common patterns for farmers and agri-businesses are: Individual or HUF farmer, for cultivation income (exempt, but partially integrated), Co-operative society, for a farmer collective (80P deduction survives), Producer company, now taxed as an ordinary company (80PA holiday ended). The right structure depends on revenue, liability exposure, and personal circumstances, covered below.

Exempt, but partially integrated

Agricultural income (rent or revenue from agricultural land in India, income from agricultural operations, and certain farmhouse income) is exempt from central income tax under Section 10(1). But partial integration applies to individuals, HUFs and similar persons where net agricultural income exceeds Rs 5,000 and non-agricultural income exceeds the basic exemption: the agricultural income is added in to determine the slab rate, then tax is computed so that the farm income itself stays exempt but raises the rate on your other income. So a farmer who also earns from a shop or salary does not get the farm income entirely tax-free in effect.

Agricultural income is exempt under Section 10(1), but partial integration uses it to raise the slab rate on non-agricultural income where net agri income exceeds Rs 5,000 and other income exceeds the basic exemption. (Income-tax Act 1961 s.2(1A) (definition) + s.10(1) (exemption) + partial-integration mechanism (re-enacted in the Income-tax Act 2025))

What is not agriculture (and is taxable)

Only operations on the soil count. The Supreme Court test (Raja Benoy Kumar) requires basic operations (tilling, sowing, planting) plus connected operations (weeding, harvesting). So crops you grow, including ordinary processing to make them marketable (drying, grading, hulling your own paddy), are agricultural. But dairy (milk is animal husbandry), poultry and eggs, fishing and aquaculture, and processing beyond the ordinary (turning fruit into jam or chips) are taxable businesses, not agriculture. Buying in crops to trade has no nexus to your own cultivation and is a business too.

Agriculture requires basic plus connected operations on the soil; dairy, poultry, fishing and processing beyond the ordinary are taxable businesses, not exempt agriculture. (Income-tax Act 1961 s.2(1A) (CIT v Raja Benoy Kumar Sahas Roy: basic + connected operations test))

Farmer collectives: 80P lives, 80PA has ended

The tax calculus for farmer collectives has flipped. Section 80PA, which gave producer companies a 100% deduction, sunset after assessment year 2024-25 and was not extended, so for 2026-27 a producer company is taxed as an ordinary domestic company with no special holiday. By contrast, Section 80P for co-operative societies survives: a co-operative engaged in marketing members' agricultural produce, supplying implements or seeds, processing members' produce without power, and similar activities gets a 100% deduction (though co-operative banks are excluded under 80P(4)). So a co-operative now generally gives better treatment than a producer company for a farmer collective.

Section 80PA (producer-company deduction) ended after AY 2024-25; Section 80P (co-operative deduction) survives, so a co-operative now gives better treatment than a producer company. (Income-tax Act 1961 s.80PA (sunset after AY 2024-25) + s.80P (co-operative deduction; s.80P(4) excludes co-op banks) (Income-tax Act 2025 s.149))

Allowable expenses

Category	Examples	Tax treatment
Cultivation inputs	Seeds, fertiliser, labour (for agri income)	Set against exempt agricultural income (not deductible against other income)
Allied-business costs	Feed, veterinary, equipment (dairy/poultry/fishery)	Deductible against the taxable allied-business income
Processing	Beyond-ordinary processing inputs	Deductible against the business portion (apportion farm-gate value)
Collective overheads	Co-operative or producer-company running costs	Deductible; 80P deduction for eligible co-operative activities
Admin	Accounting, compliance	Deductible against taxable income

Vehicle and travel costs

Vehicles used in a taxable allied business (dairy, poultry, trading) are deductible against that business income; vehicles used purely for exempt cultivation are set against the exempt income, not other income.

Capital allowances and equipment

Plant and equipment used in a taxable agri-business (dairy parlour, poultry sheds, processing machinery) depreciate against that business income. Assets used purely for exempt cultivation do not generate a deduction against taxable income.

Worked example

Ramesh — Nashik, MH

farmer who also runs a small tuition business (2026-27)

Net agricultural income Rs 4 lakh from his fields, plus Rs 6 lakh from tuition. He wonders why his tax is higher than the tuition alone would suggest.

His Rs 4 lakh farm income is exempt under Section 10(1), but because it exceeds Rs 5,000 and his tuition income exceeds the basic exemption, partial integration applies: the farm income is added in to set the slab rate on his tuition income, then tax is computed so the farm income stays exempt but lifts the rate on the taxable Rs 6 lakh. So the exemption is real but not as generous as it first appears. If instead he ran a dairy, that income would be a taxable business, not exempt agriculture.

Common audit triggers for farmers and agri-businesses

Treating dairy, poultry or fishing income as exempt agriculture (it is taxable business)
Treating beyond-ordinary processing (jam, chips) as fully agricultural
Ignoring partial integration where farm income coexists with other income
A producer company claiming the ended 80PA deduction for 2026-27
A co-operative bank claiming 80P (excluded under 80P(4))
Claiming bought-in crop trading as exempt agricultural income

Frequently asked questions

Is farm income really tax-free?+

It is exempt under Section 10(1), but not entirely free in effect. Under partial integration, if your net agricultural income exceeds Rs 5,000 and you also earn non-agricultural income above the basic exemption, the farm income is added in to set your slab rate, raising the tax on your other income (while the farm income itself stays exempt). A pure farmer with no other income keeps the full exemption.

Is dairy or poultry income agricultural?+

No. Only operations on the soil count as agriculture for tax. Dairy (milk is animal husbandry), poultry and eggs, and fishing or aquaculture are taxable businesses, not exempt agriculture. So is processing beyond the ordinary, such as turning fruit into jam. What you grow from the land, including ordinary processing to make it marketable, is agricultural; the allied activities are not.

Should a farmer collective be a co-operative or a producer company?+

For tax in 2026-27, generally a co-operative. The producer-company deduction under Section 80PA ended after assessment year 2024-25 and was not extended, so a producer company is now taxed as an ordinary domestic company. The co-operative deduction under Section 80P survives for eligible activities (marketing members' produce, supplying inputs and so on), so the calculus now favours a co-operative.

Does selling my crops attract GST?+

Fresh, unprocessed agricultural produce is largely exempt or nil-rated under GST, so a farmer selling raw produce usually has no GST to charge. Processed and packaged goods, and allied businesses like dairy products, are at their applicable GST rates. If you move into processing or branded packaging, check the rate for the specific product.

Last reviewed: 29 May 2026