{"id":137,"date":"2026-05-15T06:31:31","date_gmt":"2026-05-15T06:31:31","guid":{"rendered":"https:\/\/fippi.org\/blog\/?p=137"},"modified":"2026-05-15T09:05:49","modified_gmt":"2026-05-15T09:05:49","slug":"a-case-study-of-claiming-tax-free-agriculture-income-from-the-sale-of-agroforestry-grown-wood","status":"publish","type":"post","link":"https:\/\/fippi.org\/blog\/a-case-study-of-claiming-tax-free-agriculture-income-from-the-sale-of-agroforestry-grown-wood\/","title":{"rendered":"A case study of claiming tax \u2013free agriculture income from the sale of agroforestry grown wood"},"content":{"rendered":"\n<p><strong>Authors: R C Dhiman*, and T D Khurana**<\/strong><\/p>\n\n\n\n<p><strong>* <\/strong>Advisor-Sustainable Agroforestry Initiatives, Greenlam Industries Ltd. (Ex-Unit Head Wimco Seedlings ITC-PSPD)\/9927042364; <br>**Ex-Unit Finance Head\/ 9837024745, Wimco Seedlings-ITC PSPD, Rudrapur, Uttarakhand)<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Introduction<\/strong><\/h2>\n\n\n\n<p>Wood production and supply has gradually shifted from forests to agriculture land post-enunciation of Indian Forest policy 1988 which advocated conservation oriented management of government forests for ecological and environmental services. The policy also advised wood based industry (WBI) to grow wood raw material on agriculture land with the help of farmers. According to ICFRE recent estimates of 2025, wood production from forests is now only 2.23 Mm<sup>3<\/sup> (million cubic meters) whereas trees predominantly grown on agriculture land produce 207.58 Mm<sup>3<\/sup> wood. There are around 10106.8 M trees in agriculture land constituting wood growing stock of 1606.81 Mm<sup>3<\/sup>. These trees now constitute a significant wood resource for meeting both the domestic and industrial wood supplies in addition to supply of 88.88 Mm<sup>3<\/sup> fuelwood and 23 Mt of tree fodder. A huge value chain has developed around these trees which has created significant economical activities to generate financial benefits to numerous stake-holders. The process of growing trees for economical gains on agriculture land was systematically started around 1975 which has gradually&nbsp; matured in around five decades period.<\/p>\n\n\n\n<p>Overwhelmingly, farmers grow these trees with an intention of economical considerations. Estimated 30 M farmers are engaged in growing trees in agroforestry which is helping in doubling their income and economical empowerment. Many farmers report some production models viz., Poplar- and Leucaena-based agroforestry is currently generating around Rs. 5 lakh\/ha\/year net returns and motivating numerous fellow farmers to grow trees for improving their economical condition by selling their wood and helping in averting the wood crisis in the country. Crop harvests from agriculture fields are treated as agriculture produce and Income from them as agriculture income. Growing trees on agriculture fields is also treated as agriculture activity and income from them as agriculture income at par with other crops. Agriculture income is treated as tax-free under Indian taxation regulations. This paper reviews the interpretation of legal status of agriculture income from trees grown on agriculture land and presents a case study of a farmer who has accounted handsome agriculture income in his Income Tax Return (ITR) from selling the wood from such trees.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Legal status of Agriculture income&nbsp;<\/strong><\/h2>\n\n\n\n<p>Legislations to levy taxes in India are enacted by both the states and centre. Income Tax Act 1961 which provides overall taxation structure in the country is a central legislature whereas enacting legislation on tax on agriculture income is in the state jurisdiction. Agricultural income, as defined under Section\u202f2(1A) of the Income Tax Act, 1961 is generally exempted under Section 10(1).&nbsp;&nbsp;<\/p>\n\n\n\n<p>The definition of \u201cIncome\u201d is given under Section 2(24) of the Act which includes all earnings or gains received or accrued to a person during a financial year; whether in cash or kind and includes items&nbsp; like&nbsp; salary and wages, profits and gains of business or profession, income from house property, capital gains, interest, dividend, commission, perquisites and allowances, voluntary contributions, winning from lotteries, gaming, betting, any benefit or perquisite arising from business or profession, and deemed income (not actually received during the years).&nbsp;<\/p>\n\n\n\n<p>\u201cAgriculture Income\u201d is defined under Section 2 Sub-section (IA) of the Income Tax Act 1961. It includes income derived from land situated in India and used for agriculture purposes. It may include rent from agriculture land in India, revenue directly linked to agriculture use, and income from farm building located on or near the agriculture land. It reads as<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.<\/li>\n\n\n\n<li>Any income derived from such land by-<\/li>\n<\/ol>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Agriculture; or<\/li>\n\n\n\n<li>The performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or<\/li>\n\n\n\n<li>The sale by a cultivator or receiver of rent \u2013in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause;<\/li>\n\n\n\n<li>Any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver &nbsp; of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraph (ii) of sub clause (b) is carried on.&nbsp;&nbsp;<\/li>\n<\/ol>\n\n\n\n<p>Agricultural income could be claimed by individuals or corporate having own land or on lease to practice agriculture. WIMCO Ltd. was the first corporate house in India which started engaging in Agroforestry activities in India onward 1975. Wimco Seedlings Ltd. was created after7 years thereafter based on the ongoing poplar promotion programme of WIMCO Ltd. The company acquired agriculture land and started growing poplar trees and intercrops on such land. Wimco Seedlings Ltd has been claiming and being allowed exemption related to agricultural income since its inception (Indian Kanoon 2007).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Case Study<\/strong><\/h2>\n\n\n\n<p>A progressive farmer (identity not disclosed) in the Poplar growing region of Northwestern India cultivated&nbsp; &nbsp;14.944 ha irrigated agriculture land in addition to some other agriculture land of his sons residing abroad. He is a progressive farmer who has been one of the beginners of starting growing Poplar since early 1980\u2019s and subsequently diversified his agriculture by including Eucalyptus trees, Mango &amp; Guava orchards, and Sugarcane as commercial crops. He also invariably grew traditional crops like wheat and some others for own consumption and sale. During the year 2023-24, he harvested 2000 Poplar trees (8 years old) and 1900 Eucalyptus trees (12 years old), the wood of which was supplied to the nearby wood based units. In addition; he also sold Mango &amp; Guava fruits; and supplied sugarcane to a local sugar mill during that year.&nbsp;<\/p>\n\n\n\n<p>Total sale of agriculture produce during the year was Rs. 102 Lakh out of which Rs. 90 Lakh was from Poplar and Eucalyptus wood and&nbsp; Rs.3.245 Lakh&nbsp; from sugarcane. He also supplied Mango &amp; Guava fruits worth of Rs. 4 Lakh and 5 Lakh respectively to fruit trading parties. In addition, he received Rs. 2.25 Lakh Interest Income on his deposits in banks. Money received from all these activities (except interest) was claimed by him as Agriculture Income in the ITR for the financial year 2023-24 (AY 2024-25). His ITR went through securitizing and the Income Tax Department issued assessment notice to him under section 142(1) of the Income Tax Act 1961 asking for submission of the following documents to substantiate his income claims:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>&nbsp;The nature of business and modus operandi during the year under consideration;&nbsp;<\/li>\n\n\n\n<li>&nbsp;Certified copy of the Income and Expenditure A\/c or Profit &amp; Loss A\/c., Balance sheet, Audit report along with annexure and schedules, Computation of income and Cash flow statement for the &nbsp; year under consideration;&nbsp;<\/li>\n\n\n\n<li>Copy of Form 26AS along with the reconciliation of the same with receipts (Income);&nbsp;<\/li>\n\n\n\n<li>Copy of all bank statements for the period under consideration with &nbsp; narration for each debit and credit entries;&nbsp;<\/li>\n\n\n\n<li>For Agriculture Income during the year under consideration, the following documents may be supplied:<\/li>\n<\/ol>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Nature and type of Agricultural Income along with the details of processes undertaken;<\/li>\n\n\n\n<li>Measurement of agricultural land;<\/li>\n\n\n\n<li>Whether agricultural land is owned or held on lease;&nbsp;<\/li>\n\n\n\n<li>Whether agricultural land is irrigated or rain fed;&nbsp;<\/li>\n\n\n\n<li>Name of the district &amp; PIN Code of location where agricultural land is situated;<\/li>\n\n\n\n<li>Copy of Khatauni (crop record maintained by State Govt);<\/li>\n\n\n\n<li>Documentary evidences on mode of sale of agricultural proceeds along with copy of contracts, if any;&nbsp;<\/li>\n\n\n\n<li>Crop-wise details, yield\/acre, sale invoices\/mandi receipts, expenses incurred (such as for seeds, fertilizers, labour, irrigation), and net income earned;<\/li>\n\n\n\n<li>&nbsp;Documentary evidences with regard to expenses : seed,&nbsp; fertilizer, pesticides, labour charges, water bill, electricity bill,&nbsp; processing cost, depreciation on fixed assets, land-cess,&nbsp; other taxes &nbsp; and&nbsp; Interest on working capital;<\/li>\n\n\n\n<li>In case of land held on lease, the amount and documentary evidences of lease rent paid;<\/li>\n\n\n\n<li>In case Agricultural Income is declared first time then date &amp; source of investment in land, if any;&nbsp;<\/li>\n\n\n\n<li>Details of sale of immovable property during the year, if any;&nbsp;<\/li>\n\n\n\n<li>Nature &amp; details of total income, if any;&nbsp;<\/li>\n\n\n\n<li>Details of Kissan Credit Card;<\/li>\n\n\n\n<li>Cash flow statement;<\/li>\n\n\n\n<li>Copy of bank statements to support the claim;<\/li>\n\n\n\n<li>You have claimed higher agricultural income in the current year as compared to the previous year, despite the landholding remaining the same.&nbsp; Please explain the reasons for this increase and substantiate it with documentary evidences, including changes in cropping pattern, improved productivity, or rise in market price;<\/li>\n\n\n\n<li>Submit complete documentary evidence to substantiate the Agricultural Income claimed in your ITR;&nbsp;<\/li>\n\n\n\n<li>Please furnish the details of any scrutiny assessment completed in earlier 3 years in the case under reference along with copy of such assessment order passed and also furnish details of appellate status, if any. Please ensure that the information should be complete and uploaded systematically in the given format and in the same sequence. The pages of the reply should be duly numbered and indexed. Please ensure that the answers and annexure should be to the point. Also ensure that uploaded file is not password protected.\u00a0 You are requested to co-operate and comply with the above within the time period stimulated in the notice for early completion of assessment in your case. Kindly note that non-compliance to this notice may lead to completion of the assessment of your case u\/s 144 of the Income tax Act, 1961 and proceedings u\/s 272A(1)(d) of the Income Tax Act, 1961 could\u00a0 also be initiated against you.<\/li>\n<\/ol>\n\n\n\n<div style=\"max-width:700px; margin:auto; font-family:Arial, sans-serif;\">\n  <h3 style=\"text-align:left; margin-bottom:10px;\">\n    Table 1: Summary of income and expenditure submitted by the Assessee and appended in the Assessment order.\n  <\/h3>\n\n  <table style=\"width:100%; border-collapse:collapse; border:1px solid #555;\">\n    <tr style=\"background:#d9d7e3;\">\n      <th colspan=\"2\" style=\"padding:12px; border:1px solid #555; font-size:22px;\">\n        Annex-1<br>\n        Agricultural Income &amp; Expenditure During FY 2023-24\n      <\/th>\n    <\/tr>\n\n    <tr style=\"background:#e5e4eb; font-weight:bold;\">\n      <td style=\"padding:10px; border:1px solid #555;\">Particulars<\/td>\n      <td style=\"padding:10px; border:1px solid #555; text-align:right;\">Amount (Rs)<\/td>\n    <\/tr>\n\n    <!-- Agricultural Income -->\n    <tr>\n      <td style=\"padding:10px; border-left:1px solid #555;\">Agricultural Income<\/td>\n      <td style=\"border-right:1px solid #555;\"><\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Sale of Wood<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">9,016,827.00<\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Sale of Fresh Fruits<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">890,000.00<\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Sale of Sugarcane<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">324,249.50<\/td>\n    <\/tr>\n\n    <tr style=\"font-weight:bold; background:#efeff4;\">\n      <td style=\"padding:10px; border-top:1px solid #555; border-bottom:1px solid #555;\">\n        Total Agricultural Income\n      <\/td>\n      <td style=\"padding:10px; text-align:right; border-top:1px solid #555; border-bottom:1px solid #555;\">\n        10,231,076.50\n      <\/td>\n    <\/tr>\n\n    <!-- Agricultural Expenditure -->\n    <tr>\n      <td style=\"padding:10px; border-left:1px solid #555;\">Agricultural Expenditure<\/td>\n      <td style=\"border-right:1px solid #555;\"><\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Purchase of Poplar Saplings<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">75,000.00<\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Interest on Kissan Credit Card<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">111,378.00<\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Purchase of Fertilizer<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">4,410.00<\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px;\">Purchase of Diesel<\/td>\n      <td style=\"padding:8px 15px; text-align:right;\">9,900.00<\/td>\n    <\/tr>\n\n    <tr>\n      <td style=\"padding:8px 30px; border-bottom:1px solid #555;\">Wage Payments<\/td>\n      <td style=\"padding:8px 15px; text-align:right; border-bottom:1px solid #555;\">264,015.00<\/td>\n    <\/tr>\n  <\/table>\n<\/div>\n\n\n\n<p>Assessee farmer submitted the summary report with demanded documents in consultation with his Council (Co-Author of this paper). The reply includes summary of the desired information with special focus on agriculture proceeds and includes the sale of Poplar and Eucalyptus wood with proofs worth of around Rs. 20 Lakh, 13 lakh, 28 Lakh and 29 Lakh from 4 different parties along with receipts of Rs. 4 Lakh from sale of Mango fruits, Rs. 5 Lakh from Guava fruits from fruit trading parties and around Rs. 3.25 Lakh from sale of sugarcane. The Income from sale proceeds of claimed agriculture produce was received through banking channels. He submitted Khasra-Khatauni of the land having recorded trees on it which also includes address and location of the Assessee to substantiate his claims on agriculture land and agriculture produce. The statement of Income and Expenditure submitted by the Assessee is appended as Table 1. Wood sale transactions were supported by Mandi receipts, ledger copies provided by the concerned wood based units. The genuineness of the transactions was also proved by the corresponding banking entries. Mandi form No 6 (which is commonly referred as 6-R) details included dates of sale proceeds, quantity, rate\/qtl amount and mandi fees (marketing fees) were also appended as Annexure (sample as Table 2).&nbsp;<\/p>\n\n\n\n<p>Table 2. A sample of submitted summary of Mandi Form No. 6 containing lorry-wise detail of&nbsp; wood sold.<\/p>\n\n\n\n<div style=\"max-width:900px; margin:auto; font-family:Arial, sans-serif;\">\n  <table style=\"width:100%; border-collapse:collapse; border:1px solid #555; text-align:center;\">\n    \n    <tr style=\"background:#d9d7e3;\">\n      <th colspan=\"6\" style=\"padding:12px; border:1px solid #555; font-size:20px;\">\n        Table 2. A sample of submitted summary of Mandi Form No. 6 containing lorry-wise detail of wood sold.\n      <\/th>\n    <\/tr>\n\n    <tr style=\"background:#e5e4eb; font-weight:bold;\">\n      <th style=\"padding:10px; border:1px solid #555;\">S No.<\/th>\n      <th style=\"padding:10px; border:1px solid #555;\">Date<\/th>\n      <th style=\"padding:10px; border:1px solid #555;\">Weight (Qtls)<\/th>\n      <th style=\"padding:10px; border:1px solid #555;\">Rate per Qtl<\/th>\n      <th style=\"padding:10px; border:1px solid #555;\">Amount<\/th>\n      <th style=\"padding:10px; border:1px solid #555;\">Mandi Fee<\/th>\n    <\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">1<\/td><td style=\"border:1px solid #555;\">05-06-23<\/td><td style=\"border:1px solid #555;\">92.60<\/td><td style=\"border:1px solid #555;\">500.00<\/td><td style=\"border:1px solid #555;\">46,300.00<\/td><td style=\"border:1px solid #555;\">694.50<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">2<\/td><td style=\"border:1px solid #555;\">06-06-23<\/td><td style=\"border:1px solid #555;\">80.00<\/td><td style=\"border:1px solid #555;\">500.00<\/td><td style=\"border:1px solid #555;\">40,000.00<\/td><td style=\"border:1px solid #555;\">600.00<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">3<\/td><td style=\"border:1px solid #555;\">08-06-23<\/td><td style=\"border:1px solid #555;\">70.50<\/td><td style=\"border:1px solid #555;\">500.00<\/td><td style=\"border:1px solid #555;\">35,250.00<\/td><td style=\"border:1px solid #555;\">528.75<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">4<\/td><td style=\"border:1px solid #555;\">08-06-23<\/td><td style=\"border:1px solid #555;\">62.25<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">29,880.00<\/td><td style=\"border:1px solid #555;\">448.20<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">5<\/td><td style=\"border:1px solid #555;\">10-06-23<\/td><td style=\"border:1px solid #555;\">101.50<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">48,720.00<\/td><td style=\"border:1px solid #555;\">730.80<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">6<\/td><td style=\"border:1px solid #555;\">12-06-23<\/td><td style=\"border:1px solid #555;\">68.60<\/td><td style=\"border:1px solid #555;\">500.00<\/td><td style=\"border:1px solid #555;\">34,300.00<\/td><td style=\"border:1px solid #555;\">514.50<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">7<\/td><td style=\"border:1px solid #555;\">13-06-23<\/td><td style=\"border:1px solid #555;\">86.00<\/td><td style=\"border:1px solid #555;\">500.00<\/td><td style=\"border:1px solid #555;\">43,000.00<\/td><td style=\"border:1px solid #555;\">645.00<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">8<\/td><td style=\"border:1px solid #555;\">14-06-23<\/td><td style=\"border:1px solid #555;\">96.80<\/td><td style=\"border:1px solid #555;\">500.00<\/td><td style=\"border:1px solid #555;\">48,400.00<\/td><td style=\"border:1px solid #555;\">726.00<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">9<\/td><td style=\"border:1px solid #555;\">15-06-23<\/td><td style=\"border:1px solid #555;\">103.10<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">49,488.00<\/td><td style=\"border:1px solid #555;\">742.32<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">10<\/td><td style=\"border:1px solid #555;\">17-06-23<\/td><td style=\"border:1px solid #555;\">98.90<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">47,472.00<\/td><td style=\"border:1px solid #555;\">712.08<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">11<\/td><td style=\"border:1px solid #555;\">18-06-23<\/td><td style=\"border:1px solid #555;\">95.40<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">45,792.00<\/td><td style=\"border:1px solid #555;\">686.88<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">12<\/td><td style=\"border:1px solid #555;\">19-06-23<\/td><td style=\"border:1px solid #555;\">86.00<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">41,280.00<\/td><td style=\"border:1px solid #555;\">619.20<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">13<\/td><td style=\"border:1px solid #555;\">20-06-23<\/td><td style=\"border:1px solid #555;\">84.50<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">40,560.00<\/td><td style=\"border:1px solid #555;\">608.40<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">14<\/td><td style=\"border:1px solid #555;\">20-06-23<\/td><td style=\"border:1px solid #555;\">91.20<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">43,776.00<\/td><td style=\"border:1px solid #555;\">656.64<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">15<\/td><td style=\"border:1px solid #555;\">01-07-23<\/td><td style=\"border:1px solid #555;\">73.50<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">35,280.00<\/td><td style=\"border:1px solid #555;\">529.20<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">16<\/td><td style=\"border:1px solid #555;\">03-07-23<\/td><td style=\"border:1px solid #555;\">95.60<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">45,888.00<\/td><td style=\"border:1px solid #555;\">688.32<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">17<\/td><td style=\"border:1px solid #555;\">05-07-23<\/td><td style=\"border:1px solid #555;\">88.20<\/td><td style=\"border:1px solid #555;\">480.00<\/td><td style=\"border:1px solid #555;\">42,336.00<\/td><td style=\"border:1px solid #555;\">635.04<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">18<\/td><td style=\"border:1px solid #555;\">28-07-23<\/td><td style=\"border:1px solid #555;\">99.80<\/td><td style=\"border:1px solid #555;\">490.00<\/td><td style=\"border:1px solid #555;\">48,902.00<\/td><td style=\"border:1px solid #555;\">733.53<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">19<\/td><td style=\"border:1px solid #555;\">30-07-23<\/td><td style=\"border:1px solid #555;\">68.10<\/td><td style=\"border:1px solid #555;\">490.00<\/td><td style=\"border:1px solid #555;\">33,369.00<\/td><td style=\"border:1px solid #555;\">500.54<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">20<\/td><td style=\"border:1px solid #555;\">15-08-23<\/td><td style=\"border:1px solid #555;\">99.20<\/td><td style=\"border:1px solid #555;\">490.00<\/td><td style=\"border:1px solid #555;\">48,608.00<\/td><td style=\"border:1px solid #555;\">729.12<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">21<\/td><td style=\"border:1px solid #555;\">17-08-23<\/td><td style=\"border:1px solid #555;\">60.00<\/td><td style=\"border:1px solid #555;\">490.00<\/td><td style=\"border:1px solid #555;\">29,400.00<\/td><td style=\"border:1px solid #555;\">441.00<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">22<\/td><td style=\"border:1px solid #555;\">18-08-23<\/td><td style=\"border:1px solid #555;\">44.90<\/td><td style=\"border:1px solid #555;\">490.00<\/td><td style=\"border:1px solid #555;\">22,001.00<\/td><td style=\"border:1px solid #555;\">330.02<\/td><\/tr>\n\n    <tr><td style=\"padding:8px; border:1px solid #555;\">23<\/td><td style=\"border:1px solid #555;\">31-08-23<\/td><td style=\"border:1px solid #555;\">81.70<\/td><td style=\"border:1px solid #555;\">490.00<\/td><td style=\"border:1px solid #555;\">40,033.00<\/td><td style=\"border:1px solid #555;\">600.50<\/td><\/tr>\n\n  <\/table>\n<\/div>\n\n\n\n<p>Income from the sale of trees does not automatically qualify for tax-free agriculture income. As per the income tax rules, agriculture income is taken into account for the purpose of partial integration while determining the tax rate on taxable income, to ensure that higher agricultural earnings can affect the rate of tax applied to non-agricultural income, if the agricultural income exceeds Rs 5,000, even though the agricultural income itself remains tax-free. For claiming agriculture income, the taxpayer needs to prove that the trees were the result of active cultivations with operations like soil preparation, purchase of saplings and their planting with the intent to harvest. The taxpayer also needs to prove that his agricultural income is genuine one. The burden of proof lies entirely on the taxpayer. If the grower is unable to prove the genuineness of the Agriculture Income, department will likely classify the income as taxable and levy taxes by considering it from Other Sources . The provision of income tax exemption is applicable to the only crops including trees which are intentionally grown for sale with certain cultural operations and human skills. Spontaneous grown crops and trees are not in the exempt list. In many states, some other agricultural activities of commercial crops like tea, coffee etc. are normally taxed without exemption.<\/p>\n\n\n\n<p>Wood traded from agroforestry is in unorganized sector, as such, it is predominantly unregulated and the payment system for traded tree produce is not very transparent. Tree produce, unlike that of agriculture crops, have multiple supply points making wood trade more complicated than agriculture crop produce. There are many systems operative in the wood market which includes direct wood supply by farmers to directly WBI and \/or contractors, middlemen, traders etc.&nbsp; Some contractors including a few WBI units also purchase the standing trees in lump-sum, grade it in tradable lots and supply each grade lot to appropriate industry having demand for such grade lot. On completion of wood supply in single or multiple lots, farmers get payment immediately and\/or after some days\/weeks in some cases. Payments are made through banking systems or as cash. A significant payment system is in cash which may often remain out of accounting system in spite being authentic money.&nbsp; As such farmers tend to spent unaccounted but authentic money outside banking system exposing themselves to income tax regulations. On harvesting trees, they again tend to establish new plantations with unaccounted but authentic money.&nbsp; Farmers thus loose the benefit of getting authentic money being spent unaccounted due to this complex prevailing system. The major reasons for the current system is predominantly ignorance on the part of farmers; complicated and multiple documentations required for proving the trees grown by the farmers on his land and also the current prevailing system by the multiple wood purchasers. However, if it is taken up sincerely, there is huge benefit of accounting genuine money in individual accounts for any financial investment<\/p>\n\n\n\n<p>Emerging financial regulations and digital payment systems require financial transactions through banking systems. Payment systems transacted through non-banking systems if accounted in the income tax returns are often viewed with suspicion if they are not substantiated with appropriate documents. Tree produce is often large in volume as it is accumulated wood grown in trees from their moderate to long production cycles unlike that of agriculture crops which are often seasonal. The transacted money is very large from tree produce and its handling in cash, even if it is genuine money, poses serious security.<\/p>\n\n\n\n<p>Income from agriculture activities has traditionally been impactful as millions of farmers are connected with it. Income from sale of trees is gradually becoming much lucrative and attractive.&nbsp; Government proactively supports any agricultural activities including growing of trees which help farmers to earn more. There have been numerous drives and schemes with international, central, state and private sector support to promote growing trees in almost all states in the country during the last 5 decades. It has helped many growers to adopt growing trees as their regular agriculture activity. In the past many income generating activities including those from agriculture sector were nominal, considered easy going and were usually not accounted and noticed. In the digitally evolving world, many of the transactions are now quickly captured. Taxation provisions have often been misused in the past and it is probably still ongoing by including, excluding and clubbing agriculture related income with others. People often get panic on getting caught on the wrong side of regulations and therefore accounting genuine income from genuine activities like tree based produce is in the best interest of individual growers. They therefore need to come forward to avail the positive ingredients of tree-based agriculture income in financial empowerment.&nbsp;<\/p>\n\n\n\n<p>To realize the benefit of tax-free agriculture income, farmer needs to be cautious from the date he takes up plantation activity to maintain proper documentation till the trees are finally harvested and income is realized. An indicative list of documentation is suggested below<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Khasra Khatauni of the land from which agricultural income is derived.<\/li>\n\n\n\n<li>Khasra should have correct record of crop like nursery, Poplar and Eucalyptus trees and it should be obtained from the revenue department, every year.<\/li>\n\n\n\n<li>In case the land is taken on lease, the lease agreement should also be entered with the land lord and proof of rent payment should be obtained. It is also advisable to pay rent through banking channels. Tax deduction is not required for land rent payment up to Rs 6 Lakh per annum from the financial year 2025-26.<\/li>\n\n\n\n<li>Sale of plantation wood should be sold through Mandi and farmer copy of Mandi Receipt (6R) should be obtained.<\/li>\n\n\n\n<li>Agreement with buyer if any.<\/li>\n\n\n\n<li>Account statement or confirmation of purchase from the buyer.<\/li>\n\n\n\n<li>Address, PAN\/ GST number of the buyer.<\/li>\n\n\n\n<li>With regard to expenses like fertilizer, pesticides, insecticides, HSD and seed proper bill should be obtained and payment should be made preferably through banking channels.<\/li>\n\n\n\n<li>In case electricity is used for irrigation, electricity bill.<\/li>\n\n\n\n<li>Bank statements of all bank accounts including Kissan Credit Card.<\/li>\n<\/ol>\n\n\n\n<p>Once the Income Tax return is filed by the farmer, he may get assessment notice from department as has happened in the case study mentioned here. He needs not to get panic, if the documentation is complete to support genuine expenditure and income from different agriculture activities. Income Tax Department may ask many complimentary and supplementary documents to trace the transactions as in the current case. Better to take help of qualified chartered accounted who has handled such cases.&nbsp;&nbsp;<\/p>\n\n\n\n<p>A few knowledgeable and large farmers have now started accounting their grown trees from the day of purchasing nursery plants to their planting, growing, harvesting and selling of wood; and accounting income obtained from them in their ITRs to claim Tax-free Agriculture income. Farmers following the proper accounting procedure in production and sale of trees help them to account genuine money for better financial empowerment. The case-study presented here illustrates how knowledgeable and aware farmers could create necessary documentation and claim agriculture tax-free income from selling the wood. He can save a huge taxation liability on his income which otherwise could have been treated as income from \u201cOther Sources\u201d and taxed. This also helped him to account his genuine income in his account for any further activity for genuine investment\/expenditure.&nbsp;<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"730\" height=\"249\" src=\"https:\/\/fippi.org\/blog\/wp-content\/uploads\/2026\/05\/image-9.png\" alt=\"\" class=\"wp-image-200\" srcset=\"https:\/\/fippi.org\/blog\/wp-content\/uploads\/2026\/05\/image-9.png 730w, https:\/\/fippi.org\/blog\/wp-content\/uploads\/2026\/05\/image-9-300x102.png 300w\" sizes=\"auto, (max-width: 730px) 100vw, 730px\" \/><\/figure>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Authors: R C Dhiman*, and T D Khurana** * Advisor-Sustainable Agroforestry Initiatives, Greenlam Industries Ltd. (Ex-Unit Head Wimco Seedlings ITC-PSPD)\/9927042364; **Ex-Unit Finance Head\/ 9837024745, Wimco Seedlings-ITC PSPD, Rudrapur, Uttarakhand) Introduction Wood production and supply has gradually shifted from forests to agriculture land post-enunciation of Indian Forest policy 1988 which advocated conservation oriented management of government [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":185,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-137","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-trade-and-taxation"],"_links":{"self":[{"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/posts\/137","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/comments?post=137"}],"version-history":[{"count":4,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/posts\/137\/revisions"}],"predecessor-version":[{"id":201,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/posts\/137\/revisions\/201"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/media\/185"}],"wp:attachment":[{"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/media?parent=137"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/categories?post=137"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fippi.org\/blog\/wp-json\/wp\/v2\/tags?post=137"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}