A software business and a farm sit at opposite ends of India's tax system. Software profits are taxed in full and software services carry 18% GST. Agricultural income from land in India is exempt from income tax, and most fresh produce is outside GST. But the line between the two is not as clean as it looks: partial integration, processing, allied activities like dairy, and mixed income all change the answer.
This guide compares the two for AY 2026-27 (FY 2025-26): income tax, GST, presumptive taxation, audit, and filing.
Looking for expert help with income classification and ITR filing for software and farm income? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
At a Glance
| Aspect | Software Business | Agriculture |
|---|---|---|
| Income tax | Fully taxable | Agricultural income exempt under Section 10(1), but counted for rate purposes (partial integration) |
| Head of income | Business or profession | Agricultural income (exempt) |
| GST | 18% on services | Nil on most fresh produce; farmers selling own produce need not register |
| Presumptive tax | Section 44ADA (IT professionals) or 44AD (business) | Not applicable to exempt agricultural income |
| Tax audit | Rs 1 crore / Rs 10 crore (business) or Rs 50 lakh / Rs 75 lakh (profession) | Not applicable to exempt agricultural income |
| ITR form | ITR-3, ITR-4, ITR-5 or ITR-6 | ITR-2 or ITR-3 if agricultural income exceeds Rs 5,000 |
Income Tax: The Section 10(1) Exemption
The Constitution leaves the taxation of agricultural income to the states, and Section 10(1) of the Income-tax Act, 1961 exempts it from central income tax.
What Counts as Agricultural Income (Section 2(1A))
- Rent or revenue from agricultural land in India
- Income from cultivating land and selling the produce, including processing needed to make it marketable (threshing, drying, cleaning)
- Income from a farm building used for these activities, subject to conditions
- Income from saplings or seedlings grown in a nursery
What Does Not
| Activity | Treatment |
|---|---|
| Dairy, poultry, fisheries, sericulture, beekeeping | Taxable business income (no basic operations on land) |
| Processing into a different product (milling wheat into flour, making jaggery for sale) | The processing profit is taxable business income; Rule 7 lets the market value of the produce be treated as agricultural |
| Agricultural land outside India | Fully taxable |
| Interest on crop loans given to others, dividends from an agro company | Taxable |
| Sale of agricultural land | Capital gains question, not agricultural income. Rural agricultural land is not a capital asset; urban agricultural land is |
For more detail, see our agricultural income guide.
Partial Integration: How Farm Income Still Raises Your Tax
For individuals and HUFs, if net agricultural income exceeds Rs 5,000 and non-agricultural income exceeds the basic exemption limit, agricultural income is used to set the rate on your other income:
- Compute tax on non-agricultural income + agricultural income.
- Compute tax on agricultural income + the basic exemption limit.
- Tax payable = (1) minus (2), plus cess.
Example (new regime, AY 2026-27): software income Rs 15 lakh, agricultural income Rs 5 lakh.
| Step | Calculation | Tax |
|---|---|---|
| Tax on Rs 20 lakh | 5% of Rs 4 lakh + 10% of Rs 4 lakh + 15% of Rs 4 lakh + 20% of Rs 4 lakh | Rs 2,00,000 |
| Tax on Rs 9 lakh (Rs 5 lakh + Rs 4 lakh basic exemption) | 5% of Rs 4 lakh + 10% of Rs 1 lakh | Rs 30,000 |
| Tax payable before cess | Rs 2,00,000 minus Rs 30,000 | Rs 1,70,000 |
Without the farm income, tax on Rs 15 lakh would be Rs 1,05,000. The exempt Rs 5 lakh of farm income adds Rs 65,000 of tax on the software income. The basic exemption limit used in step 2 is Rs 4 lakh in the new regime and Rs 2.5 lakh, Rs 3 lakh or Rs 5 lakh (by age) in the old regime.
Software Business: Fully Taxable
| Structure | Tax Rate (AY 2026-27) |
|---|---|
| Proprietor | Slab rates (new or old regime) |
| Partnership firm or LLP | 30% + surcharge (12% if income exceeds Rs 1 crore) + 4% cess |
| Private limited company | 22% + 10% surcharge + 4% cess under Section 115BAA (25.17% effective) |
GST: 18% vs Nil
Software and IT Services
| Service | SAC | GST |
|---|---|---|
| IT consulting and support | 998313 | 18% |
| IT design and development | 998314 | 18% |
| Hosting and IT infrastructure provisioning | 998315 | 18% |
| IT infrastructure and network management | 998316 | 18% |
- Exports to foreign clients are zero-rated under an LUT (Form GST RFD-11) if the conditions in Section 2(6) of the IGST Act are met.
- Registration is needed once aggregate turnover exceeds Rs 20 lakh (Rs 10 lakh in Manipur, Mizoram, Nagaland and Tripura).
- Composition for services (6% under Section 10(2A)) exists for turnover up to Rs 50 lakh, but it is not available if you make inter-state supplies, which rules it out for most software businesses with clients in other states.
See GST on IT and software services.
Agriculture
| Item | GST (after GST 2.0, 22 September 2025) |
|---|---|
| Fresh fruits and vegetables | Nil |
| Cereals and pulses (not pre-packaged and labelled) | Nil; 5% when pre-packaged and labelled |
| Fresh milk | Nil |
| Seeds for sowing | Nil |
| Tractors and specified farm machinery | 5% |
| Most fertilisers | 5% |
| Chemical pesticides | 18% (specified bio-pesticides 5%) |
| Agricultural support services (cultivation, harvesting, renting farm machinery with operator, warehousing of agricultural produce) | Exempt |
An agriculturist supplying produce from cultivation of land does not need GST registration (Section 23(1)(b) of the CGST Act). A farmer cannot claim input tax credit on the 5% or 18% paid on inputs, because the produce is exempt.
Presumptive Taxation
Software: Section 44ADA or 44AD
Information technology is a notified profession under Section 44AA(1), so individual software developers and IT consultants can use Section 44ADA.
| Aspect | Section 44ADA |
|---|---|
| Who | Resident individual or partnership firm (not LLP) |
| Limit | Gross receipts up to Rs 50 lakh; Rs 75 lakh if cash receipts do not exceed 5% |
| Deemed profit | 50% of gross receipts |
| ITR | ITR-4 (if total income up to Rs 50 lakh and agricultural income up to Rs 5,000), otherwise ITR-3 |
| Audit | Needed if you declare less than 50% and income exceeds the basic exemption limit |
A software business run as a trading or product business, rather than as a profession, can use Section 44AD (6% or 8% of turnover, limit Rs 2 crore or Rs 3 crore). See our Section 44ADA guide.
Agriculture
There is no presumptive scheme for agricultural income because it is exempt. Allied activities like dairy or poultry are business income and can use Section 44AD where eligible.
Tax Audit and Books of Account
| Case | Tax Audit Threshold (AY 2026-27) |
|---|---|
| Software business (44AB(a)) | Turnover above Rs 1 crore; Rs 10 crore if cash receipts and cash payments are each within 5% |
| IT professional (44AB(b)) | Gross receipts above Rs 50 lakh; Rs 75 lakh if cash receipts are within 5% |
| Company | Statutory audit under the Companies Act every year, plus tax audit above the 44AB limit |
| Agricultural income | No audit or books needed for the exempt income itself; keep land records, sale bills and mandi receipts to prove the claim |
Filing and Compliance
| Compliance | Software Business | Agriculture |
|---|---|---|
| ITR form | ITR-3 or ITR-4 (individual), ITR-5 (firm/LLP), ITR-6 (company) | ITR-2 or ITR-3 if agricultural income exceeds Rs 5,000; report it in Schedule EI |
| ITR due date (AY 2026-27) | 31 Aug 2026 non-audit ITR-3/4 (passed); 31 Oct 2026 audit cases | 31 Jul 2026 for ITR-2 (passed) |
| GST returns | GSTR-1 and GSTR-3B monthly or quarterly; GSTR-9 above Rs 2 crore | None for exempt produce |
| TDS | On salaries, contractors, rent and professional fees | Large buyers may deduct 0.1% TDS under Section 194Q on purchases above Rs 50 lakh; claim it in the ITR |
| Advance tax | Four instalments (or one by 15 March under 44ADA) | Not on the exempt income, but partial integration raises the advance tax due on your other income |
Getting the Classification Right
Claims of large agricultural income get close attention from the Income Tax Department, especially where the taxpayer also has salary or business income. Keep:
- Land ownership or lease records (7/12 extract, pahani or patta)
- Crop sale bills, mandi receipts and bank credits
- Records of cultivation expenses
Wrongly claiming business or software income as agricultural income can lead to tax, interest and a penalty under Section 270A of 50% of the tax on under-reported income, or 200% if it is misreported.
Where Tax Garden Helps
Tax Garden helps you:
- Decide what is agricultural income and what is business income
- Compute partial integration correctly in your ITR
- Choose between Section 44ADA and regular books for software income
- Handle GST registration, LUT and returns for software services
- File ITR-2, ITR-3 or ITR-4 with Schedule EI, and reply to income tax notices
Looking for expert help with ITR filing with agricultural and software income? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Sources: Income-tax Act, 1961 (Sections 2(1A), 2(14), 10(1), 44AA, 44AB, 44AD, 44ADA, 54B, 115BAA, 194Q, 270A) and Income-tax Rules, 1962 (Rules 7, 7A, 7B, 8); CGST Act, 2017 (Sections 10(2A), 23) and GST rate notifications effective 22 September 2025; IGST Act, 2017 (Section 2(6)). Check current rates and thresholds on incometax.gov.in and cbic-gst.gov.in before acting. This article is general information, not professional advice.
Frequently Asked Questions
Is agricultural income fully exempt from income tax?
Agricultural income from land in India is exempt under Section 10(1), so it is never taxed directly. But if net agricultural income exceeds Rs 5,000 and other income exceeds the basic exemption limit, it is added for rate purposes under partial integration, which pushes your other income into higher slabs. So it can still increase your total tax.
Are dairy, poultry and fish farming agricultural income?
No. Agricultural income needs basic operations on land, such as tilling, sowing and harvesting. Dairy, poultry, fisheries, sericulture and similar activities do not qualify and are taxed as business income. Income from saplings or seedlings grown in a nursery is treated as agricultural income by an Explanation to Section 2(1A).
What is the GST rate on software development services?
IT and software services are taxed at 18% GST, under SAC 998313 for IT consulting and support, 998314 for design and development, 998315 for hosting and 998316 for IT infrastructure management. Exports to foreign clients are zero-rated under an LUT if the export conditions in Section 2(6) of the IGST Act are met.
Does a farmer need GST registration to sell crops?
No. An agriculturist supplying produce from cultivation of land is not required to register under Section 23(1)(b) of the CGST Act, and most fresh produce is exempt anyway. Registration becomes relevant only if the farmer also runs a taxable business, such as selling processed or branded packaged products, above the threshold.
Can a software developer use Section 44ADA?
Yes. Information technology is a notified profession under Section 44AA(1), so a resident individual or partnership firm (not an LLP) in software or IT consulting can declare 50% of gross receipts as profit under Section 44ADA. The limit is Rs 50 lakh, or Rs 75 lakh if cash receipts do not exceed 5% of total receipts.
Which ITR form do I file if I have agricultural income?
ITR-1 and ITR-4 can be used only if agricultural income is Rs 5,000 or less. Above that, a salaried person or investor files ITR-2, and anyone who also has business or professional income files ITR-3. Agricultural income is reported in Schedule EI of the return.
How is income from coffee, tea or rubber taxed?
Rules 7A, 7B and 8 split the income. For tea grown and manufactured, 40% is business income and 60% agricultural. For rubber, 35% is business income. For coffee grown and cured, 25% is business income; if it is also roasted and ground, 40% is business income. The rest is exempt agricultural income.
Is the sale of agricultural land taxable?
Rural agricultural land is not a capital asset under Section 2(14), so gains on its sale are not taxed. Urban agricultural land is a capital asset and its sale is taxed as capital gains, with relief available under Section 54B if you buy other agricultural land. The gain is capital gains, not agricultural income.
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