The present study aimed to establish the impact of non-farm participation on rural non-farm incomes using the PSLM-HIES 2007-2008 data. Heckman Procedure was employed to examine the effects of non-farm activities on agricultural incomes and to analyze the counterfactual income scenarios. Results revealed that access to non-farm income sources led to an increase in rural income by providing alternatives to households with lower agricultural productivity; moreover, non-farm activities had positive spill-over effects on agricultural productivity. Education, household landownership and participation of local population in non-farm activities were all found to be significant determinants of participation in non-farm activities. Households that have specialized in farming were found to have unobservable characteristics that make them better farmers