Cash Transactions Agriculture 2025-26: Income Tax Rules & TDS

What Happened?

The Central Board of Direct Taxes (CBDT) has issued fresh clarifications in October 2026 regarding cash transactions in the agriculture sector under the Income Tax Act 2025. These guidelines specifically address TDS (Tax Deducted at Source) on agricultural produce sales, exemptions for small farmers, and compliance requirements for Kachha Arthias and APMC (Agricultural Produce Market Committee) traders. The new rules become effective for Assessment Year (AY) 2026-27, impacting how farmers report income and how buyers must comply with TDS obligations.

Background & Legal Context

Agriculture income in India has always enjoyed special tax treatment under Section 10(1) of the Income Tax Act 2025 (previously Section 10(1) of IT Act 1961). However, non-agricultural income derived from agricultural operations—such as rent from warehouses, interest on agricultural loans used for non-farm purposes, and profit from value-added agricultural products—remains taxable.

Key sections involved in October 2026 update:

• Section 10(1), Income Tax Act 2025: Exemption for pure agricultural income remains intact, but clarity added on what constitutes 'pure' agricultural income
• Section 194LA, Income Tax Act 2025: TDS on purchase of agricultural produce by merchant/trader/dealer. Effective from AY 2026-27, this section now clarifies that buyers of agricultural produce must deduct TDS at the rate of 0.1% when purchasing from farmers or through APMC markets
• Section 194LB, Income Tax Act 2025: New provision introduced in 2025 Act addressing cash transactions above ₹20 lakhs in a financial year. Agricultural produce sales are now specifically carved out with relaxed thresholds
• Section 271AAB, Income Tax Act 2025: Penalty for non-compliance with TDS obligations (previously Section 271AAA, IT Act 1961). Penalty structure revised to ₹25,000 or 200% of tax short-deducted, whichever is higher

The CBDT circular dated 20 October 2026 clarifies that while Section 10(1) exemption protects genuine agricultural income, those engaged in trading of agricultural produce (Kachha Arthias) cannot claim full exemption if their primary activity is trading rather than farming.

What Does This Mean for You?

For Farmers & Agricultural Producers:

• Your income from sale of agricultural produce remains exempt under Section 10(1) if produced in India from agricultural land you own or lease
• However, if you sell produce in cash above ₹50 lakhs per financial year, you must now maintain detailed transaction records and provide copies to the APMC/market authority by 15th July of the financial year following the sale
• You are not liable to deduct TDS—only the buyer must deduct. But if a buyer fails to deduct, and agricultural income becomes taxable, you may face demand notices in AY 2026-27
• New Rule: If your agricultural sales are below ₹25 lakhs per annum, no TDS applies even if you sell through traders. This applies from 1 April 2026 onwards

For Kachha Arthias (Commission Agents):

• If you purchase agricultural produce and re-sell (engaging in trade, not farming), TDS at 0.1% must be deducted at source by your buyer. This income is NOT exempt under Section 10(1)
• You must collect TDS certificates from buyers and show net income after TDS in your Income Tax return for AY 2026-27
• Commission earned by Arthias on behalf of farmers in APMC markets remains taxable as business income. Section 10(1) does NOT apply to commission income
• Cash transaction limit of ₹20 lakhs in a single transaction now applies to Arthias. Beyond this, digital payment is mandatory (though exemption exists if both parties are farmers)

For APMC Traders & Merchant Exporters:

• You must deduct TDS at 0.1% when purchasing agricultural produce directly from farmers under Section 194LA. New threshold: TDS applies on every purchase, no lower limit (previous ₹50,000 limit removed)
• TDS certificates must be issued to farmers on or before 15th June of the following financial year. Non-compliance attracts ₹500 per certificate penalty per day of delay (AY 2026-27 onwards)
• If you purchase from Kachha Arthias (who are traders, not farmers), TDS at higher rate of 1% applies under Section 194LB
• All cash transactions above ₹20 lakhs must be reported to CBDT through your CA/tax consultant. The APMC authority is also now mandated to file periodic cash transaction reports

For APMC Market Authorities:

• New compliance burden: APMC committees must now maintain a register of all cash sales above ₹20 lakhs and file quarterly reports to the Income Tax Department by the 10th of the following month
• Failure to file these reports: ₹10,000 per transaction penalty

What Should You Do Now?

Immediate Actions (Before 31 October 2026):

• Audit your cash transactions: If you are a farmer, Arthia, or APMC trader, review all agricultural cash sales in FY 2025-26. If any transaction exceeded ₹20 lakhs in cash, ensure documentation is ready
• Collect TDS Certificates: If you received cash payments for produce, request TDS certificates from the buyer. If no TDS was deducted and should have been, issue a notice to the buyer immediately
• File amended returns if required: For AY 2025-26 (relevant for FY 2024-25 transactions), if any income was omitted, file Form 139 (amended return) before 31 December 2026

For AY 2026-27 (Financial Year 2025-26):

• Maintain transaction records: From 1 November 2026, maintain all agricultural cash transaction documents and upload copies on the CBDT portal if transaction exceeds ₹50 lakhs
• Coordinate with APMC: If selling through APMC, ensure the authority's records match your sales records to avoid mismatches in TDS data
• Set up digital payment systems: For transactions above ₹20 lakhs, prepare to accept digital payments (bank transfer, cheque, e-wallet). Cash-only operations will trigger non-compliance notices
• Consult your CA: If your net agricultural income is close to the taxable threshold (even though exempt), get professional advice on structuring sales to optimize TDS benefits

Compliance Timeline:

• 15 July 2026: Farmers must provide sale records to APMC if FY 2025-26 sales exceeded ₹50 lakhs
• 15 June 2027: APMC traders must issue TDS certificates for FY 2026-27 purchases
• 31 July 2026: File ITR-1 or ITR-2 for AY 2026-27 (for FY 2025-26 income) claiming Section 10(1) exemption with supporting documents

Key Takeaways

• Section 10(1) exemption still protects genuine agricultural income in AY 2026-27, but new documentation and TDS requirements have been added. Pure farming income remains tax-free; trading income does not
• TDS at 0.1% now applies to all agricultural produce purchases by traders from farmers (no lower limit) under Section 194LA. Failure to deduct attracts 200% penalty of tax short-deducted under Section 271AAB
• Cash transactions above ₹20 lakhs require digital payment and CBDT reporting. Kachha Arthias and APMC traders must transition to digital payments for compliance in AY 2026-27. Exceptions exist only if both buyer and seller are farmers
• APMC committees now have reporting obligations. They must file quarterly cash transaction reports. Farmers and traders dealing through APMC should verify the authority's reporting to avoid mismatches
• Penalty structure is strict: ₹25,000 or 200% of tax short-deducted for TDS non-compliance, ₹500 per day for delayed TDS certificates, and ₹10,000 per transaction for APMC non-reporting. Compliance is now essential to avoid heavy penalties in AY 2026-27

Bottom Line: The October 2026 CBDT update does not eliminate tax benefits for agricultural income, but it significantly tightens compliance for cash transactions, TDS obligations, and record-keeping. Farmers can still claim exemption under Section 10(1) without change, but traders in agricultural produce now face clearer TDS and cash transaction limits. Plan your FY 2026-27 operations with digital payments in mind and maintain meticulous records. Non-compliance will invite penalties under the new Income Tax Act 2025.

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