FBR reaffirms tax exemption for agri income in revised legislation

KARACHI: The Federal Board of Revenue (FBR) has restated that agricultural income remains free from federal income tax obligations in Pakistan. This clarification comes in response to the FBR’s introduction of an updated Income Tax Ordinance, 2001, which came into effect on July 1, 2023. Section 41 of the Income Tax Ordinance, 2001, explicitly states the exemption of agricultural income from taxation and outlines the specific criteria for this exemption:

(1) Agricultural income derived by a person shall be exempt from tax under this Ordinance.

(2) In this section, agricultural income means,

(a) any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes;

(b) any income derived by a person from land situated in Pakistan from

(i) agriculture;

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or

(c) any income derived by a person from —

(i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);

(ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on,

but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a storehouse, or other out-building.

This announcement reinforces the longstanding tax exemption on agriculture income in Pakistan, providing clarity to taxpayers and stakeholders within the agricultural sector. It underlines the government’s commitment to supporting the agricultural industry and encouraging its growth without imposing income tax burdens on agricultural activities and earnings.