Agricultural Income in Pakistan Now Tax-Free, Confirmed by FBR

The Federal Board of Revenue (FBR) in Pakistan has officially confirmed that agricultural income remains exempt from federal income tax regulations, in line with the updated Income Tax Ordinance, 2001, effective as of July 1, 2023. Section 41 of the Income Tax Ordinance, 2001, specifically outlines the criteria for this exemption:

Agricultural income earned by individuals is entirely exempt from taxation under this Ordinance.

In this section, agricultural income encompasses:

a) Any rent or revenue generated from land located in Pakistan and utilized for agricultural purposes.

b) Any earnings from land in Pakistan resulting from:

i) Agricultural activities.

ii) The processes typically employed by cultivators or rent-in-kind receivers to prepare produce for market.

iii) The sale of produce by cultivators or rent-in-kind receivers, provided no other processes beyond those described in sub-clause (ii) have applied.

c) Any income sourced from:

i) Buildings owned and occupied by rent or revenue receivers of land as mentioned in clause (a) or (b).

ii) Buildings occupied by cultivators or rent-in-kind receivers of land where the activities defined in sub-clauses (ii) or (iii) of clause (b) carried out, provided these buildings are located on or near the land and are necessary as dwelling-houses, storehouses, or other out-buildings due to their connection with the land.

This announcement reinforces Pakistan’s long-standing policy of exempting agricultural income from taxation. This decision provides clarity to taxpayers and stakeholders in the agricultural sector, demonstrating the government’s commitment to supporting agricultural growth and development without imposing income tax burdens on agricultural activities and earnings. This move expected to bolster the agricultural industry while fostering an environment of tax relief for those involved.