The FBR says agricultural income remains exempt under the Income Tax Ordinance, 2001, while Section 41 defines qualifying farming income and related buildings.
ISLAMABAD: The Federal Board of Revenue (FBR) has clarified that agricultural income remains exempt from tax under the Income Tax Ordinance, 2001 for Tax Year 2027.
According to the Income Tax Ordinance, updated up to June 30, 2026, agricultural income derived by a person is exempt from tax under the Ordinance.
What qualifies as agricultural income?
Under Section 41 of the Income Tax Ordinance, agricultural income includes rent or revenue derived from land situated in Pakistan and used for agricultural purposes.
The provision also covers income derived from agricultural land in Pakistan through farming activities, as well as certain income earned by cultivators or receivers of rent-in-kind.
The law specifically includes income from processes ordinarily employed by a cultivator or receiver of rent-in-kind to make agricultural produce fit for taking to market.
Income from the sale of produce raised or received by a cultivator or receiver of rent-in-kind is also covered, provided that no process has been carried out other than one ordinarily used to make the produce marketable.
Buildings connected with agricultural land
Section 41 also treats certain income from buildings connected with agricultural land as agricultural income.
This includes income derived from a building owned and occupied by the receiver of rent or revenue from qualifying agricultural land.
It also covers buildings occupied by a cultivator or receiver of rent-in-kind where agricultural operations or related produce-processing activities are carried out.
However, the provision applies only where the building is situated on or in the immediate vicinity of the relevant land and is required by the receiver or cultivator because of their connection with the land.
Such buildings may include a dwelling house, storehouse or other out-building.
Agricultural income remains exempt for Tax Year 2027
The FBR’s clarification confirms that qualifying agricultural income continues to receive tax-exempt treatment under Section 41 for Tax Year 2027.
The provision sets out the types of farming-related income that qualify as agricultural income, including income from agricultural land, the ordinary processing of produce and certain buildings associated with agricultural activities.