Agricultural Income

Agriculture Income is exempted from Income Tax under section 10 sub

clause 1.
the Parliament has no powers under the constitution India to levy tax on
agricultural income because entry 82 of union list empower the Parliament
to make law for leaving tax on income other than agricultural income.
Agriculture Income section 2 sub clause 1A means
1. Any rent or revenue derived from land which is situated in India and used
for a purpose.
2. Agriculture income derived from search land by agriculture orthe
performance by cultivator or receive of rent in kind or any such process to
fit for sale in to the market or rent in kind.
3. Any income derived from any building owned or occupied by the
receiver of rent or revenue by way of deductive house exempted firm
house .
Note Any 2009 - 10 income from nursery operation Section 2(1A) has been
amended with effect from the assessment year 2009-10 so as to provide
that any income derived from samplings or seeding grown in a nursery
should be deemed to be agriculture which is qualifying for exemption under
section 10 (1)

Processing of Agricultural produce or income derived from marketing

process -
sometime it is a become difficult to find ready market of the crops as
harvested in order to make the produce a commodity which is saleable it
becomes necessary to performed some kind of process on the produce.
The income arising by way of enhancement of value of such produce by
performing such process to make the raw produce fit for market is also
Agriculture Income. however the following condition must be satisfied :
a.the process must be one which is ordinary employed by a cultivator or
receiver of rent in kind and
b. the process must be applied to render the produce fit to be taken to
market for instance tobacco leaves are ordinary dried to make then
suitable for sale. Therefore the income from the ordinary process employed
to dry the tobacco leaves to make them fit to be taken to market is
Agriculture Income.
The ordinary process employed to render the produce fit to be taken
market includes thrashing, winnowing, clearing drying boiling and decanting
etc. through the nature of process depends upon quality of produce and
varies from time to time.
In India, agricultural income refers to income earned or revenue derived
from sources that include farming land, buildings on or identified with an
agricultural land and commercial produce from a horticultural land.
Agricultural
CIT versus Madhu Sadan Rahul 1944 –
After drying the tobacco leaf they are made marketable in the market. The
income earned by selling this kind of dried tobacco leaf will be considered
as agricultural income. The process of making salable is involved but
quality is increased in production. तंबाकू की पत्ती को सुखाकर उन्हें
बाजार में विक्रय योग्य बनाया जाता है इस प्रकार की सुख आई गई
तंबाकू की पत्ती को बेचने प्राप्त आय को कृषि आय माना जाएगा सा
जनता भूल से अन से अलग करना फटकार ना साफ करना सुखाना कुचलना
उबालना निहारना इत्यादि उपज को विक्रय योग्य बनाने की
प्रक्रिया में शामिल है परंतु उत्पादन में गुणवत्ता बढ़ाई
जाती है
The ordinary process employed to render the produce fit to be taken
market includes thrashing, winnowing, clearing drying boiling and decanting
etc. through the nature of process depends upon quality of produce and
varies from time to time.

Income is defined under section 2(1A) of the Income Tax Act, 1961.
According to this Section, agricultural income generally means:
(a) Any rent or revenue derived from land which is situated in India and is
used for agricultural purposes.
(b) Any income derived from such land by agriculture operations including
processing of agricultural produce so as to render it fit for the market or
sale of such produce.
(c) Any income attributable to a farm house subject to satisfaction of certain
conditions specified in this regard in section 2(1A).
(d) Any income derived from saplings or seedlings grown in a nursery shall
be deemed to be agricultural income.

I. Income should be derived from agricultural land-

for only that income will be exempted which is related to land. the land

must be an effective and immediate source of income and not or indirect or

secondary source of income.

Examples of Agricultural Income

The following are some of the examples of agricultural income:
 Income derived from sale of replanted trees.
 Income from sale of seeds.
 Rent received for agricultural land.
 Income from growing flowers and creepers.
 Profits received from a partner from a firm engaged in agricultural
produce or activities.

Interest on capital that a partner from a firm, engaged in agricultural

operations, receives

Income an account of transfer of Agricultural land. Income is not related to

Agriculture Income from example

1. if a person transfer his agriculture land for amount of life annuity- it is not

income derived from that land because the effective and immediate source
of income is contract of life annuity and not land.

2. Government compensation received from on account of acquisition of

agriculture land is also not regarded as Agriculture Income.

3. Dividend paid by a company out of its Agriculture Income is not income

is share holding and not the land.

4. Interest of outstanding of rent of land is not Agriculture Income

(case CIT V. K S Iman Saheb 1964)

II the agriculture land must be situated in India -Agriculture Income from

land situated outside in India is a taxable

iii land must be used for agriculture work -

If the land is not used for agriculture work then the income derived will not

be treated as agricultural income .if the land was used for agriculture in the

previous year but in the current year it is used for some other purpose than

it is incase will not be treated as agricultural income.

Agriculture works means tilling of the land, sowing of the seeds, planting,

watering, ploughing etc.

Commissioner versus Raja Vinay Kumar Sahib Rao 1957 Supreme Court -

the words agriculture and Agriculture purpose have not been define under

the Act. Therefore one has to be depend upon ordinally meaning and

decided cases it has been held by the supreme court in the case of CIT

versus Raja Vinay Kumar agriculture wark shall includes two operations-
1. basic operation

2.subsequent operation

1.basic operations(perlimiary ) are performed before the plant comes out

of land such as tilling of land, sowing of seeds ,watering of land and

planting etc

2. subsequent operation (subsidiary works ) are performed after the plant

comes out of land such as wedding, pruning, cutting ,using pesticides

harvesting .

According to the judgement given by various courts if no basic operation

are performed and only the subsequent operations are performed then the

income will not be treated as agricultural income. for illustration Agriculture

Income arising from sale of of wild grass, forest tree, fruits and flowers

which grown on land spontaneously without the add human skil and Labour

are not treated as Agriculture Income because here no basic operation is

performed .Similarly if the person purchase standing crops from a cultivator

then the income derived from selling of the standing crop will not be treated

Agriculture Income as no basic operation has been performed by the

purchase of standing crops

The following income will be included in the agricultural income

1. Self generated( spontaneous )grass for cattles.

2. Rent from forest.

3. Cultivation of flower and fruits .

3. Sale of fruits, flower, wood if cultivated by assessee.

4. Interest on capital to partners and salary to partners and engaged in

agriculture work if same amount was deducted while calculating income of

farm.

5. Claim from insurance company if the crops are damaged by cyclone,

excess rain fall, fire etc.

Kinds of Agricultural income

1. Rent received on land-

If the owner of land grants the rights of cultivating his land to another

person then the consideration received by the owner for the act is known

as rent and such income is treated as agricultural income.

The rent may be received in cash or kind.

2. Income derived for agriculture work performed by any person like

owener, tenant, mortgage etc is know agricultural income. Agricultural work

means telling of land, showing of seeds, watering of land, harvesting etc

3. Proceeding of agriculture produce-

any income derived from performance of such operation by the cultivator

which are necessary to bring the produce in saleable ,marketable

conditoon is agricultural income for example income derived from

separately wheat and grass drying of tobacco leaves it should be noted that

in such processing is mechanized and not essential for example, income

derived from extracting oil from ground nuts producing or converting

unginned cotton to ginned cotton etc. then such income are not included

to Agriculture Income.

4. Income derived from sale of Agricultural produce -

if the farmer sells his own produce crops or produce which he has received

in the form of rent the income drived will be agriculture even if he sells it at

his own shop .but if the farmers sells Such produce which he has

purchased from other person then such income will not be treated

Agriculture Income for example if a farmer produce looking of wheat and

sold it to Mohan and Mohan further sold it to Ram then the income derived

from such case will be treated as agricultural income in case of the farmer

but not in case of Mohan.

5. Income from building used for agriculture -

The income derived from building used for agriculture is treated as

agricultural income .if it is satisfy the following condition:

1. The building must be situated on the agriculture land on must be

adjoining to it.

2. The building must be in the ownership of the cultivator of the person

receiving the rent .

3. The building is used as a residence of the cultivator or a storage house

or other out building.

4. The land on which the building is situated is either assessed to the land

revenue or local taxes in India .if there is no tax applicable on such land

then the land must not be situated in urban area.

(b) In instances where such a land revenue is not assessed or not subject

to local rate, the land should not be situated within the jurisdiction of a

municipality (whether known as a municipality, municipal corporation,

notified area committee, town area committee, town committee or by any

other name) or a cantonment board, and which has a population of more

than ten thousand (according to the last preceding census which has been

published before the first day of the previous year in which the sale of land

takes place); or it should not be situated:

more than 2kms. from the local limits of any municipality or cantonment

board and which has a population of more than 10,000 but not exceeding

1,00,000; or

not being more than 6kms. from the local limits of any municipality or

cantonment board and which has a population of more than 1,00,000 but

not exceeding 10,00,000; or

not being more than 8kms. from the local limits of any municipality or

cantonment board and which has a population of more than 10,00,000.

Non Agricultural Incomes
the following income through related to land for agriculture are not
agricultural income, hence taxable:
(a) Income From sale of forests, trees, wild grass ,fruit flowers grown
spontaneously and without human effort.(CASE Raja Mustafa Ali Kan V.
C.T.I.(1948)I.T.R. 1(S.C.)

(b) Income from salt produced by flooding the land with sea water

(c) Remuneration received by a manager from a agriculture form

(d) Income from breeding of livestock

(e) Income from dairy farming, butter and cheese making (Case C.I.T. V.
Venkataswamei Naidu(1956)29 I.T.R.529(S.C.)

(f) Income from poultry farming

(g) Income from Fisheries (Emperor v.Probhat Ch. Barua(1942)

I.L.R.51Cal.504)

(h) Preservation of potatoes by refrigeration as it is not a process ordinarily

employed a cultivator

(i) Income from brick making

(j) Income from supplying surplus water toot her agriculturists

( k) Interest on arrears of rent in respect of agricultural land.

(l) Profit on sale of standing crops/ agricultural produce purchased by the

assessee.

(m) Income derived from letting out of land/ godowns for storing crops

(n) Royalty income of mines.

(o) Annuity payable to vendor of agriculture land or payable to a person

giving up His claims to piece of agricultural land

(p) Harvest Crop on purchased land.

(q) Compensation/damages paid for loss of agricultural income due to late
payment of Installments of the consideration price of rubber plantation site.
.
(r) Income from land used for small market and exhibition.

(s) Salary of employees of an Agriculture Farm.

(t) Award received by cultivator for high production of Crop.

(u) remuneration received by a manager from a agriculture form

(v) Receipts from TV serial shooting in farm house.

(w) Income from bee hiving.

Partly Agricultural Income: -

S.No PARTICULARS AGRICULTURAL NON- Rule

INCOMEN AGRICULTURALINCOME
1. In case of 65% 35% 7A
rubber
2. In case of
coffee:
If only grown
and cured 75% 25% 7B (1)
In case of
further
processes after
curing 60% 40% 7B (2)
3. In case of tea 60% 40% 8

4. In any other 7
case,
Note: -
Note: -
In all these cases income is first computed as if nothing is exempt
b) In any other case, rule 7 is applicable
Partly agricultural income from other business activities-(rule 7 )
if the assessee utilise the agriculture produce raised by him as raw material in the
manufacturing activity of his business then from the market value of the agricultural produce the
total cost of manufacturing is deducted and the remaining amount will be non agriculture profit
chargeable to tax.Here the market value means:
a. average price at which such produce was sold during the relevant previous year.
B. in case of agriculture produce is not ordinary sold in the market, the aggregate of the
following amount is considered as market value of produce:
1. cultivation expenses
2.land revenue or rent of the land and
3.a reasonable amount of profit in the opinion of Assessing officer according to rule 7

अन्य व्यावसायिक गतिविधियों से आंशिक रूप से कृषि आय (नियम 7)

यदि करदाता अपनी फसल अपने उद्योग में काम में लेता है तो बाजार में जो मार्केट
वैल्यू है सीधा उसे जोड़ ले यदि प्रीवियस ईयर मैं बाजार मूल्य क्या था वह दिया
गया हो या बाजार मूल्य ज्ञात करना संभव नहीं हो तब आप बाजार मूल्य ज्ञात करें के
लिए उसमें कृषि खर्च कृषि भूमि का राजस्व या किराया और आयकर अधिकारी की दृष्टि
से उचित लाभ इन तीनों को जोड़कर बाजार मूल्य निकाला जाएगा ।Example:-Total turnover
is 30 crores
Agricultural expenses are 5 crores
Manufacturing expenses are 10 crores
FMV of agricultural produce is 10 crores
Therefore, total non agricultural income is turnover less FMV of agricultural produce less
manufacturing expenses which comes out as 10 crores and total agricultural income can be
computed as FMV of agricultural produce less agricultural expenses which comes out as 5
crores.
8. Computation of tax on non-agricultural income when income has agricultural income also: -
Though agricultural income is exempt from tax, however there is special method of partial
integration applicable for computing tax on non-agricultural income. This method is applicable
only when: -Non-agricultural income exceeds maximum amount non chargeable to tax i.e. the
exemption limitNet agricultural income exceeds Rs. 5000
Calculation of tax is done in the following manner: -
Step1:-Add agricultural income to non-agricultural income and calculate tax as if this is total
income. STEP 2: -Add agricultural income to maximum amount non-chargeable to tax and
calculate tax as if this is total income.
STEP3:-Deduct tax computed in step 2 from tax computed in step 1.The amount so computed is
the actual tax payable.
STEP4: -Add surcharge, education cess and secondary and higher education cess.

Is Agricultural Income Taxable?

As per Section 10(1) of the Income Tax Act, 1961, agricultural income is
exempted from taxation. The central government cannot levy tax on the
agricultural income received. However, agricultural income is considered
for rate purposes while assessing the income tax liability if the following two
conditions are met:
 Net agricultural income is greater than Rs. 5,000/- for previous year.
  Total income, excluding net agricultural income, surpasses the basic
exemption limit (Rs. 2, 50,000 for individuals below 60 years of age
and Rs. 3, 00,000 for individuals above 60 years of age).
If these two conditions are met, tax liability shall be computed in the
following manner:
Step 1: Let us regard agricultural income as X and other income as Y Tax
computed on X+Y is B1
Step 2: Let us regard basic exemption slab for income tax payment as A
Tax computed on A+X is B2
Step 3: The actual income tax liability shall be B1-B2
Note: If the individual’s aggregate agricultural income is up to Rs. 5,000,
the individual will have to disclose the agricultural income in the income tax
return (ITR). In case the agricultural income crosses Rs. 5,000, the
individual will have to disclose the agricultural income in ITR 2.
500000=250000exemption remaining 2, 50,000 of 10%=25,000

agricultural income 1,50,000of20%=30,000 +25000 =55,000(A)

second step 250000exemption + agricultural income 1,50,000=4,00,000

250000 is exemption remaining1,50,000 of 10%=15,000(B)

55,000(A)- 15,000(B)=40,000
यदि एग्रीकल्चर इनकम नहीं होती तो हमें ₹25000 का टैक्स देना
पड़ता क्योंकि एग्रीकल्चर इनकम है इसलिए हमें ₹40000 का टैक्स
देना पड़ रहा है अर्थात हमने बढ़ी हुई राशि के रूप में टैक्स ले
लिया गया हम यह नहीं कह सकते कि एग्रीकल्चर इनकम पर टैक्स लगा
दिया बल्कि हम यह कहेंगे कि नॉर्मल इनकम पर हम से अधिक टैक्स
लिया गया है यहां पर ₹500000 पर 25000 टैक्स बनता है और जिस में
एग्रीकल्चर इनकम हम शामिल नहीं करते हैं लेकिन जब हम
एग्रीकल्चर इनकम शामिल करते हैं तो नियम के अनुसार नॉर्मल इनकम
exemption लिमिट से ज्यादा होनी चाहिए और एग्रीकल्चर इनकम 5000
से ज्यादा होनी चाहिए तभी जाकर partrcil intergration नियम लागू होता
है ऐसी परिस्थितियों में पहले हम नॉर्मल इनकम में एग्रीकल्चर
इनकम जोड़कर टैक्स निकालते हैं जोकि 25000 प्लस
30000(20%of1,50,000=30,000 ) कुल मिलाकर ₹55000 टैक्स बनता है
जिसे हमने A माना है । और बी को ज्ञात करने के लिए हमने exemption
इनकम में एग्रीकल्चर इनकम को जोड़कर उदाहरण में चार लाख
प्राप्त किया 400000(250000exemption + agricultural income 1,50,000)
इस 400000 मे सेexemption लिमिट 250000 निकाल दी शेष राशी डेढ़
लाख बची उस पर हम हमने 10 परसेंट टैक्स लगाया जो ₹15000 निकल कर
आया अब यहां पर हम A माइनस B अर्थात 55000 - 15000 = 40000 पर
टैक्स देंगे इस तरीके से partrcil intergration के अंतर्गत हमारी
टैक्स की राशि बढ़ गई ।

Section 54B of the Income Tax Act, 1961

Section 54B of the Income Tax Act, 1961, provides relief to taxpayers who
sell their agricultural land and use the sale proceeds to acquire another
agricultural land. To claim tax benefit under Section 54B of the Income Tax
Act, the following conditions will have to be satisfied:
 This benefit can only be claimed by an individual or a HUF
 The agricultural land should be used by the individual or his or her
parents for agricultural purpose for at least two years immediately
preceding the date on which the exchange of land occurred. In case
of HUF, the land should be used by any member of HUF.
 The taxpayer should purchase another agricultural land within two
years from the date of selling the old land. In case it is an incident of
compulsory acquisition, the period of acquiring new agricultural land
will be assessed from the date of receipt of compensation. It must be
noted that under Section 10(37), capital gain shall not be chargeable
to tax if agricultural land is compulsorily acquired under any law, and
the consideration of which is approved by the central government or
banking regulator and received on or after 01-04-2004.