Module -III
Agricultural Income
Agriculture income is exempt under the Indian Income Tax Act. This means that income
earned from agricultural operations is not taxed. The reason for exemption of agriculture
income from Central Taxation is that the Constitution gives exclusive power to make
laws with respect to taxes on agricultural income to the State Legislature. However while
computing tax on non-agricultural income agricultural income is also taken into
consideration.
What does the term Agricultural Income mean?
As per Income Tax Act income earned from any of the under given three sources meant
Agricultural Income;
(i) Any rent received from land which is used for agricultural purpose.
(ii) Any income derived from such land by agricultural operations including processing
of agricultural produce, raised or received as rent in kind so as to render it fit for the
market, or sale of such produce.
(iii) Income attributable to a farm house subject to the condition that building is situated
on or in the immediate vicinity of the land and is used as a dwelling house, store house
etc.
Now income earned from carrying nursery operations is also considered as agricultural
income and hence exempt from income tax.
In order to consider an income as agricultural income certain points have to be kept in
mind:
(i) There must me a land.
(ii) The land is being used for agricultural operations.
(iii) Agricultural operation means that efforts have been induced for the crop to sprout
out of the land .
(iv) If any rent is being received from the land then in order to assess that rental income
as agricultural income there must be agricultural activities on the land.
(v) In order to assess income of farm house as agricultural income the farm house
building must be situated on the land itself only and is used as a store house/dwelling
house.
School of law, Christ University 1
Certain income which is treated as Agriculture Income;
(a) Income from sale of replanted trees.
(b) Rent received for agricultural land.
(c) Income from growing flowers and creepers.
(d) Share of profit of a partner from a firm engaged in agricultural operations.
(e) Interest on capital received by a partner from a firm engaged in agricultural
operations.
(f) Income derived from sale of seeds.
Certain income which is not treated as Agricultural Income;
(a) Income from poultry farming.
(b) Income from bee hiving.
(c) Income from sale of spontaneously grown trees.
(d) Income from dairy farming.
(e) Purchase of standing crop.
(f) Dividend paid by a company out of its agriculture income.
(g) Income of salt produced by flooding the land with sea water.
(h) Royalty income from mines.
(i) Income from butter and cheese making.
(j) Receipts from TV serial shooting in farm house is not agriculture income.
School of law, Christ University 2
Certain points to be remembered;
(a) Agricultural income is considered for rate purpose while computing tax of
Individual/HUF/AOP/BOI/Artificial Juridical Person.
(b) Losses from agricultural operations could be carried forward and set off with
agricultural income of next eight assessment years.
(c) Agriculture income is computed same as business income.
Answer the following questions
1. If agricultural produce is processed to make it marketable at a place other than
the agriculture land then amount charged for such processing will be agriculture
income or not ??
2. What if agriculture operation is carried on urban land?
3. If any industrial organisation grow crops and sale half of the goods as raw
material in market and remaining further processed and sold as finish goods what
will be the tax treatment?
School of law, Christ University 3
4. Rahul has 5 cows in his agriculture farm. He sells cow milk to a diary nearby.will
this be agricultural income.
5. Why rent on land treated as agricultural income? What difference is there if the
land is in specified area?
6. Rent received on building used for agricultural purposes is also treated as
agricultural income, but it is necessary that land should be on or in the vicinity of
the land. What if building is not in the vicinity of the land but still it is used for
agricultural purpose.
7. Mohanti has agricultural income of Rs 3,00,000/-. Is there any higher limit for
the exemption and how to calculate the agricultural income while including with
other sources.
8. Rajnath is in the process of starting a 50 animal dairy farm, in partnership with
a land owner (sleeping partner). He is selling this milk to milk society (KMF).
The land is about 15 Acers and I’m using about 10 Acers to grow fodder for these
animals. Is this income tax exempted?
School of law, Christ University 4
10. Muddu Krishna is starting a business of commercial goat farming on
agricultural land. Is income from this business taxable?
11. Charan is a coffee planter. Growing coffee is considered as agricultural Income.
However there are many trees grown (not spontaneously) by him for the purpose of
shade. He would like to sell these trees as “sale of timber”. Whether the income
generated from the sale of Timber is the “agricultural income”?
If this is taxable what are the ways by which he can get exemption.
12. Why is agricultural income exempted?
School of law, Christ University 5
13. Priya is growing flowers in cocpeat in plastic tray on stand and hydroponics
system..(means one feet above the land )
She is selling flower in local market and export also. Income tax department says
she is growing flowers above land therefore it is not an agriculture activity.
Hence income is subject to tax. Advise Priya.
School of law, Christ University 6
