Income from inherited agricultural land is tax-exempt but could push up your tax bracket; HUFs enjoy additional benefits

Taxation of inherited agricultural land

The income from agricultural land is generally tax-free. But what happens when you inherit such land? Today’s Ask Wallet Wise query explains the tax treatment when agricultural land is inherited, either by an individual or through a Hindu Undivided Family (HUF). 

Moneycontrol's Ask Wallet Wise initiative offers expert advice on matters of personal finance and money. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

I have received Rs 1 lakh as my share of the family’s agricultural income from ancestral land during the year. Is it taxable in my hands? Do I have to disclose this receipt in my ITR? Which ITR form should I use, as I missed the September 16, 2025, deadline? 

Expert Advice: It appears that the share of agricultural income received by you originally belongs to your HUF, and what you have received is merely a distribution of the HUF’s income among its members. Such a distribution is fully exempt under Section 10(2) of the Income Tax Act. However, it must be disclosed under Schedule EI (Exempt Income) of the ITR as a share of income from HUF, and not as agricultural income.

However, if the agricultural income received by you represents your own share from agricultural land inherited and jointly owned with your family members, it will be treated as your share of agricultural income. In that case, although agricultural income is fully exempt under Section 10(1), it must be included for rate purposes. This means that it is added to your total income to compute the tax rate applicable to your regular income, effectively increasing your average rate of tax.

In both cases, the amount should be disclosed under Schedule EI (Exempt Income). In the second situation, since your agricultural income exceeds Rs 5,000, you cannot use ITR-1 and will have to file ITR-2, provided you do not have any income taxable under the head Profits and Gains of Business or Profession. If you do have such income, you will need to file ITR-3 or ITR-4, depending on the nature of your income.

Please note that, in addition to interest for any shortfall in advance tax and delay in filing the ITR, you must also pay a late filing fee of Rs 5,000 if your total taxable income exceeds Rs 5 lakh. If your income exceeds the basic exemption limit but does not exceed Rs 5 lakh, the late filing fee will be restricted to Rs 1,000.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

Ask Wallet-Wise