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CHAPTER – 2 AGRICULTURAL INCOME
Agricultural Income:
Income should be derived from land
Land should be situated in India
Land should be used for agricultural purposes
Treatment of agricultural income for tax purposes:
Agricultural Income is exempt from tax under section 10 (1). However, agricultural income is
integrated to non-agricultural income for rate purposes.
Step 1: Integrate both agricultural income and non-agricultural income if possible.
Step 2: Compute tax on the integrated income.
Step 3: Compute tax on agricultural income after adding basic exemption to it.
Step 4: Step 2 minus step 3.
note: Integration is possible only if agricultural income exceeds Rs.5,000 and non-agricultural
income exceeds basic exemption limit.
note: The purpose of integration is that assessee pays more tax on his other income by way of
increase in the slab rate.
note: Integration is not applicable in cases where incomes are taxed at special rates.
Income from: Rule Agricultural Non-agricultural
income income
Growing and manufacturing
tea in India 8 60% 40%
Growing rubber plants and
manufacturing latex in India 7A 65% 35%
Coffee grown and
cured in India 7B (1) 75% 25%
Coffee grown, cured, roasted
and grounded in India 7B (1A) 60% 40%
Few examples of agricultural income:
Income derived from the sale of seeds
Income from growing of flowers and creepers
Rent received from land used for grazing of cattle required for agricultural activities
Income from growing of bamboo
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Few examples of Non-agricultural income:
Income from purchase and sale of standing crops
Income from breeding of livestock
Income from poultry farming
Income from fisheries
Income from dairy farming
Whether income from nursery constitutes agricultural income?
Yes, Income derived from saplings or seedlings grown in a nursery would be deemed to be
agricultural income, whether or not the basic operations were carried out on land.
Problems:
1. For the previous year ending March 31, 2026, non-agricultural income of X (age: 32 years) is
Rs.2,40,000, whereas agricultural income is Rs.18,00,000. Is he liable to pay income tax?
2. Mr.X, a resident, has provided the following particulars of his income for previous year 25-26:
Income from salary (computed) Rs.10,80,000; Income from house property (computed)
Rs.2,50,000; Agricultural income from a land in Jaipur Rs.4,80,000; Expenses incurred for
earning agricultural income Rs.1,70,000. Determine his tax liability under default tax regime and
under optional tax regime assuming his age is: a) 45 years or b) 70 years.
3. Mr.A, aged 67 years, is engaged in the business of roasting and grounding of coffee, derives
income Rs.24 lakhs during the financial year 2025-26. He has no other income. Compute tax
liability assuming that he has opted default tax regime.
4. Mr.B earned Rs.20,00,000 from sale of coffee grown and cured (processed) by him. He claims the
entire income as agricultural income, hence exempt from tax. Is he correct?
5. Mr.Raja, a resident Indian, earns income of Rs.10 lakhs from sale of coffee grown and cured in
India during the previous year 25-26. His friend, Mr.Shyam, a resident Indian, earns income of
Rs.20 lakhs from sale of coffee grown, cured, roasted and grounded by him in India during the
previous year 25-26. What would be the business income chargeable to tax in India?
6. Mr.C manufactures latex from the rubber plants grown by him in India. These are then sold in
the market for Rs.30 lacs. The cost of growing rubber plants is Rs.10 lacs and that of
manufacturing latex is Rs.8 lacs. Compute his total income.
7. Mr.Sumit, a resident Indian, earns income of Rs.15 lakhs from sale of rubber manufactured from
latex obtained from rubber plants grown by him in India and Rs.20 lakhs from sale of rubber
manufactured from latex obtained from rubber plants grown by him in Malaysia during the
A.Y.2026-27. What would be his business income, assuming he has no other business?
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8. Mr.A, a resident aged 25 years, manufactures tea from the tea plants grown by him in India.
These are then sold in the Indian market for Rs.72 lakhs. The cost of growing tea plants was
Rs.30 lakhs and the cost of manufacturing tea was Rs.18 lakhs. Compute his tax liability for the
Assessment Year 2026-27 under the default tax regime.
9. Mr.R had estates in Rubber, Tea and Coffee. He derives income from them. He has also a nursery
wherein he grows plants and sells. For the previous year ending 31.03.2026, he furnishes the
following particulars of his sources of income from estates and sale of plants. You are requested
to compute the taxable income for the Assessment Year 2026-27:
Manufacture of Rubber Rs.10,00,000
Manufacture of Coffee grown and cured Rs.5,00,000
Manufacture of Tea Rs.7,00,000
Sale of plants through nursery Rs.1,00,000
10.Miss Vivitha, a resident and ordinary resident, has derived the following incomes from various
operations (relating to plantations and estates owned by her) during the year ended 31.03.2026:
Income from sale of centrifuged latex processed from rubber plants grown in Darjeeling:
Rs.3,00,000
Income from sale of coffee grown and cured in Yercaud, Tamil Nadu: Rs.1,00,000
Income from sale of coffee grown, cured, roasted and grounded, in Colombo. Sale
consideration was received at Chennai: Rs.2,50,000
Income from sale of tea grown and manufactured in Shimla Rs.4,00,000
Income from sapling and seedling grown in a nursery at Cochin: Rs.80,000
(basic operations were not carried out by her on land)
You are required to compute the business income and agricultural income of Miss Vivitha for the
Assessment Year 2026-27.
Problems for practice
11.Taxable Income of Mr.S for the assessment year 2026-27 is Rs.24,00,000. Compute tax payable
(default tax regime) by Mr.S assuming that he has agricultural income of:
(a) Nil; (b) Rs.5,000; and (c) Rs.16,00,000.
12.Mr.X, grows sugarcane to manufacture sugar. Data for 2025-26 is as follows:
Cost of cultivation of sugarcane Rs.4,00,000
Market value of sugarcane when sugarcane is transferred to the factory Rs.9,00,000
Other manufacturing cost Rs.6,00,000
Sales turnover of sugar Rs.17,00,000
Compute taxable income of Mr.X.
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13.Mr.K grows paddy and uses the same for the purpose of manufacturing rice in his own Rice Mill.
The cost of cultivation of 40% paddy produce is Rs.7,00,000 which is sold for Rs.15,00,000; and
the cost of cultivation of balance 60% paddy is Rs.12,00,000 and the market value of such paddy
is Rs.24,00,000. To manufacture the rice, he incurred Rs.2,00,000 in the manufacturing process
on the balance (60%) paddy. The rice was sold for Rs.30,00,000. Compute the business income
and agricultural income of Mr.K.
14.Mr.P (aged 25 years) is engaged in growing and manufacturing tea in India. His profit for the
previous year 2025-26 amounts to Rs.10,00,000 which includes profit of Rs.2,00,000 from sale of
green leaves plucked in his own garden. He has no other income during the year. Compute the
total income and total tax payable by Mr.P under the optional tax regime.
15.Discuss with brief reasons, whether rent received for letting out agricultural land for a movie
shooting and amounts received from sale of seedlings in a nursery adjacent to the agricultural
lands owned by an assessee can be regarded as agricultural income, as per provisions of the
Income-tax Act, 1961.
16.State with brief reasons whether the following are agricultural income either in whole or in part:
i. Purchase of standing sugarcane crop by Mr.A for Rs.2 lakhs and after cutting the canes,
selling them for Rs.2,50,000.
ii. Income from milk dairy run by Mr.R in his agricultural lands Rs.50,000
iii. Income from sale of plants Rs.1,00,000 earned by Mr.J who maintains a nursery
iv. Income from sale of latex Rs.3,20,000 realised by Mr.T who owns rubber estate, cultivates
rubber and manufactures latex.
Answers:
15.Land is not used for agricultural purposes. Therefore, rent received for letting out agricultural
land for a movie shooting is NOT agricultural income.
Amount received from sale of saplings or seedlings in a nursery is to be treated as agricultural
income, whether or not the basic operations were carried out on land.
16.a. No basic operations (agricultural activities) were carried out on the land.
To be treated as business income.
b. Business income
c. Agricultural income
d. Agricultural income (65%) and Business income (35%)
Case Study Question:
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Mr.Anand is a traditional farmer who was inherited with 35 acres of rural agricultural land which was
around 20 kms from nearest town. He is cultivating in 15 acres - Paddy, which is directly taken by rice
traders. Another 10 acres of land is used for growing Sugarcane and as per practice sugarcane is
purchased by sugar mills nearby the villages for which payments were received by NEFT/RTGS/IMPS.
Remaining area is cultivated for:- (1) Mulberry leaves & (2) Part of Mulberry leaves are used for being fed
to silkworms and obtaining silk cocoons and selling these silk cocoons in market. During the financial
year 2025-26, Mr.Anand had got net income of ₹ 4 lakhs from sale of Paddy, ₹ 3,50,000 net gain on sale of
Sugarcane and Rs.75,000 by selling Mulberry leaves alone. He carried out Mulberry silkworm production
using his Mulberry leaves worth Rs.50,000 and selling the silk cocoons by spending Rs.2,00,000 and got
Rs.3,75,000 on sale of Silk Cocoons to Silk Co-operatives.
Based on the above information, answer the following MCQ no.1 to 3:
MCQ-1:
(A) Paddy income of ₹ 4,00,000 alone is exempt as agricultural income.
(B) Sugarcane income of ₹ 3,50,000 and Paddy income of ₹ 4 lakhs will constitute as agricultural
income.
(C) Sale of Mulberry leaves amounting to ₹ 75,000, Paddy income of ₹ 4 lakhs and sugarcane income
of ₹ 3,50,000 will all constitute agricultural income.
(D) Paddy income of ₹ 4 lakhs, Sugarcane income of ₹ 3,50,000 and sale & use of Mulberry leaves ₹
1,25,000 all will constitute agricultural income. Ans: D
MCQ-2:
(A) The sale of Mulberry leaves ₹ 75,000 will not constitute as agricultural income.
(B) The amount of ₹ 3,75,000 being sale proceeds of silk cocoons to silk co-operatives will constitute
as agricultural income.
(C) Net income from production of silk cocoons ₹1,75,000 is exempt from tax being agricultural
income.
(D) Net income from sale of silk cocoons amounting to Rs.1,25,000 will not be treated as agricultural
income and will be taxed either as business income or IFOS. Ans: D
MCQ-3:
(A) Entire amount of agricultural income of Mr.Anand will be Rs.12,00,000.
(B) Agricultural income will be Rs.8,25,000 whereas gain on sale of silk cocoons amounting to
Rs.1,25,000 will be non-agricultural income.
(C) Agricultural income will be ₹ 8,75,000 whereas non-agricultural income will be ₹ 1,25,000.
(D) Since Mr.Anand mixes agricultural activities with non-agricultural activities the entire receipt of ₹
12,00,000 will be treated as non-agricultural income. Ans: C
