Exempt income – agricultural income and others
Some income is outside federal income tax altogether. The main one is agricultural income (s.41), which is taxed by the provinces instead. Exempt income is declared in the return but not added to taxable income.
Where it applies
- Landowners and farmers with income from agricultural land in Pakistan: crop sales, rent or revenue from the land, and farm buildings used with it (s.41(2))
- Anyone with income exempted under the Second Schedule (s.53), for example certain pensions, scholarships and specified institutions
How it works, step by step
The section of law behind each step is shown beside it.
- 1Check it is agricultural incomes.41(2)
Only income from land in Pakistan used for agriculture qualifies: crops, rent-in-kind and produce sold without processing beyond what makes it fit for market. Income from processing (a mill, a dairy plant), livestock trading or land sale gains is not agricultural income.
- 2Pay provincial agricultural income taxProvincial AIT Acts
Agricultural income is taxed by the province under its own Agricultural Income Tax law. Provinces revised these laws from 1 January 2025 under the IMF programme; rates and their application have since been changed and challenged, so confirm the current rate with your provincial revenue authority.
- 3Declare it in the federal returns.114, s.116
Show it under exempt income in IRIS and include the land and income in the wealth statement and reconciliation.
- 4Keep proof of provincial taxs.111 proviso
Where agricultural income explains assets, money or expenses, FBR accepts it only to the extent worked back from the provincial agricultural income tax actually paid.
Rates and rules
| Case | Rate / rule | Law |
|---|---|---|
| Agricultural income | Exempt from federal income tax; not added to taxable income for rate purposes | s.41(1) |
| Provincial agricultural income tax | Set by each province (Punjab, Sindh, KP, Balochistan); not adjustable against federal tax | Provincial AIT |
| Agricultural land in the wealth statement | Declare area and cost; land up to 12.5 acres is exempt from Punjab land tax | s.116 |
Worked example
Points to watch
- Agricultural income tax is a provincial subject under the Constitution, which is why it is exempt under the federal Ordinance.
- Gains on selling agricultural land, income from processing produce, and income from livestock or poultry as a business are not covered by s.41.
- Use the income flow calculator above to see exempt income alongside your other income.