Tax on Agricultural Income:
means that the land is used only for agricultural purposes. Even if the land is rented out, the tenant will use it only for farming.
The main forms of income are:
- Produce obtained from direct cultivation of the land.
- Profits obtained from normal agricultural practices (ploughing, harvesting, weeding, etc.) to improve the yield of the land or to bring it to market.
- Direct sale of crops or commodities, provided that no industrial or mechanical processing has been done on them, except for those natural factors that usually occur in the field (such as drying by rain or sun).
- Profits derived from a building on or near the field and used by the farmer or tenant (such as a residence, warehouse or other necessary farm buildings).
Taxation
The provincial governments have the power to levy taxes on income derived from land. The federal government cannot have taxed it. According to Section 41 of the Income Tax Ordinance, this income is exempt from central levy, but the condition is that the tax due at the provincial level has been paid. If the provincial charges are not deposited, this income will be considered as business income and person shall pay according to the federal laws.
Earlier, each province had its own laws and there were slight differences in rates and procedures. But in February 2025, these laws were revised and now the rates for agricultural income tax in Khyber Pakhtunkhwa, Sindh, Punjab and Baluchistan are almost the same.
How to file a return?
To deposit provincial tax, one has to go to the office of the local officer or tax collector as the online system is not available. A form is given there in which income and expenses are recorded. If any amount is payable, it is deposited through a challan. This process has to be repeated every year.
The procedure may differ slightly depending on the province. For example, in Khyber Pakhtunkhwa, even if the annual production is less than six lakh rupees, the form must be submitted.
Who is required to file tax return?
- 50 acres or more of irrigated land, or
- 100 acres or more of non-irrigated land, or
- More than 50 acres of both types combined irrigated and non-irrigated land. Then tax returns filing is mandatory.
Reporting in FBR
A question often arises that how to show it in the FBR annual tax return form after the provisional tax has been paid? There is a separate section in the FBR form in which details of agricultural income and provincial paid amount must be provide.
Remember:
Proof of challan is mandatory for this.
If the FBR issues a notice, this proof can be provided and an explanation can be given.
Many people only claim that tax has been paid but do not actually submit it. Provincial agencies provide this information to the FBR, so there may be a penalty for misrepresentation.
Deductible Expenses in Computing Agricultural Income
Labor Expenses
Expenses on cultivating land, sowing seeds, ploughing, planting, maintaining, harvesting, and making the produce marketable.
Labor expenses on any type of agricultural operation.
Expenses on purchasing agricultural inputs
Purchasing seeds.
Fertilizers and pesticides.
Agricultural services and repairs
Expenses on rental or use of animals, tractors, machinery and equipment.
Repair and maintenance of canal water courses.
Expenses incurred on production
Harvesting of crops.
Packaging, transportation and marketing of produce.
Mandatory government and local payments
Ushr.
Local cess and other cesses.
Water rates (Abyana).
Electricity bills for tube wells and lift pumps.
Fuel charges for tube wells and pumps.
Expenses related to agricultural land and loans
Land rent (if taken on rent).
Expenses related to taking agricultural loans.
Interest/mark-up on agricultural loans.
Depreciation on agricultural assets
15% annual deduction on the written value of agricultural buildings, plant and machinery.
Other expenses
All expenses which are not of a capital nature.
Personal or administrative expenses incurred solely for agricultural purposes.
Rates of Agricultural Income Tax:
The rates for small farmers are as under
| S.NO | Taxable income | Rate of tax |
| 2 | 600,001 – 1,200,000 | 15% of the amount above. 600,000/- |
| 3 | 1,200,001 – 1,600,000 | 90,000/- + 20% of the amount above.1,200,000/- |
| 4 | 1,600,001 – 3,200,000 | 170,000/- + 30% of the amount above. 1,600,000/- |
| 5 | 3,200,001 – 5,600,000 | 650,000/- + 40% of the amount above. 3,200,000/- |
| 6 | 5,600,001 and above | 1,610,000/- + 45% of the amount above. 5,600,000/-: |
The rates for the companies are as under:
| Type of Company | Rate of Tax |
| Small company | 20% |
| Any other company | 29% |
Super tax on high income earners.
If a person’s source income exceeds Rs 150 million, he will be liable to pay super tax.
| S. No. | Agricultural income for levy of super tax | Rate of super tax |
| 1. 2. | 150 – 200 million | 1% |
| 2. 3. | 200 – 250 million | 2% |
| 3. 4. | 250 – 300 million | 3% |
| 4. 5. | 300 – 350 million | 4% |
| 5. 6. | 350 – 400 million | 6% |
| 6. 7. | 400 – 500 million | 8% |
| 7. 8. | Above 500 million | 10% |
Land Tax
If the profit is less than Rs. 600,000, the person concerned will pay land levy instead of income tax. These rates will be applicable as per the zone. The Board of Revenue has divided the tehsils, districts and villages within the tehsil into different zones.
| Rates of Land tax | ||||
| Zone-1 | Zone-2 | Zone-3 | Zone-4 | |
| The tax will be calculated per acre of irrigated land, with one acre of irrigated land being equal to two acres of non-irrigated land | ||||
| 12 ½ – 25 Acres | 1,200 | 900 | 500 | 300 |
| 25 -50 Acres | 2,500 | 1700 | 1,000 | 600 |
| Exceeds 50 Acres | 3,500 | 2500 | 1,500 | 900 |
| 3,500 | 2500 | 1,500 | 900 | |
| Mature Orchards | ||||
| Irrigated | 3,500 | 2500 | 1,500 | 900 |
| Un- Irrigated | 1,750 | 1250 | 750 | 450 |
Penalty for non-filing of returns
If any person fails to file returns or returns within the prescribed time without any reasonable cause, the Collector may impose on him a penalty of:
A penalty of 0.1% of the tax due for that year or Rs. 1,000 (whichever is higher) will be imposed for each day of delay.
However, the minimum penalty will be as follows based on agricultural profit earned
- If the profit is up to Rs. 12,00,000, the minimum penalty will be Rs. 10,000.
- If the profit is more than Rs. 12,00,000 but up to Rs. 40,000,000, the minimum penalty will be Rs. 20,000.
- If the profit is more than Rs. 40,000,000, the minimum penalty will be Rs. 50,000.
Surcharge for delay or non-payment of tax
If a person fails to pay tax on time, the Collector may impose a surcharge on him, which shall be:
12 percent per annum, or
KIBOR + 3 percent per annum (whichever is higher).
This surcharge shall be levied on the tax due on the basis of the number of days of delay.
However, the total amount of surcharge shall not exceed 50 percent of the amount of actual tax.
Before imposing any penalty or surcharge, the taxpayer shall be given an opportunity to present his/her position. For more Information, please get in touch with us through our website by filling out the Contact Us form, or reach out via our social media accounts.
