Taxation of Polyhouse Farming

Great question, Moti! Here's a clear breakdown regarding Polyhouse farming income and GST applicability for an LLP:

1. Is income from Polyhouse farming considered agricultural income?

• Agricultural income as per the Income Tax Act (Section 2(1A)) includes income derived from agricultural land, such as rent or revenue, and income from agricultural operations.

• Polyhouse farming involves controlled environment agriculture — growing crops under a protective structure (polyhouse) often on leased or owned land.

• Courts and CBDT have held that if the farming activity involves cultivation of plants or crops on agricultural land, it is considered agricultural income.

• So, if the LLP’s polyhouse farming is genuine cultivation on agricultural land, the income is agricultural income and thus exempt from income tax.

• However, if the LLP is engaged in activities beyond cultivation (like processing, trading), that income may be taxable as business income.

2. Is GST applicable on sale of polyhouse produce?

• Under GST, agricultural produce in its natural state is exempt from GST.

• But sale of produce after some processing or value addition may attract GST.

• For polyhouse produce:

  • If the produce is sold in natural form (like fresh vegetables, fruits) — generally GST is not applicable.

  • If the produce is processed or packed, GST may apply.

• Additionally, if the LLP is registered under GST and turnover crosses threshold limits, they must comply with GST registration and filing, but on exempt supplies.

Summary: