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
Sources of agricultural Income
• As per Income Tax Act income earned from any of the under given
three sources mean 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.
Tests to Determine Agricultural Income
• Income derived from land
• Land is used for agricultural purposes
• Land is situated in India
Illustrations of Agricultural incomes
• (a) Income from sale of replanted tree
• (b) Income from growing flowers and creepers.
• (c) Share of profit of a partner from a firm engaged in
agricultural operations.
• (d) Interest on capital received by a partner from a firm
engaged in agricultural operations.
• (e) Income derived from sale of seeds.
• (f) sale of standing crop by a cultivator
• (g) income from growing of flowers
• (h) grazing fees realised from piece of land used for grazing of
animals used for agricultural purposes
Certain income which is not treated
as Agricultural Income;
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(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.
Partly agricultural and partly non
agricultural income
crop
rule
Agricultural income Non agricultural
income
Growing and
manufacture of tea
8
60%
40%
Rubber
manufacturing
business
7A
65%
35%
Coffee grown and
cured by seller
7B(I)
75%
25%
Coffee grown,
cured, roasted and
grounded by the
seller in India with
or without mixing
any flavouring
ingredients
7B(IA)
60%
40%
Assessment of Agricultural income
• with effect from A.Y 1974-75, the agricultural income is
integrated with non agricultural income in certain cases of
assesses. The integration is done only when the assessee has
both agricultural and non agricultural incomes
• Non agricultural income of the assessee is the computed total
income of the assess as per the provisions of the Income Tax
Act
Computation of Agricultural income
• Important Points
• Any sum paid by the person on account of any tax
levied by State Government on agriculture will be
allowed as deduction
• Loss incurred in agriculture will be allowed to be
setoff only against gains from agriculture
• Where the net result of agricultural income from
various sources is loss, the loss will be
disregarded and net agricultural income will be
taken as nil.
When to Integrate
• Integration is done only in case of (i) individuals (ii) HUF (iii)
AOP (iv) BOI and (v) artificial juridical person
• Integration is done only when the non agricultural income
exceeds the basic exemption limit in the relevant previous
year
• Integration is done only if the net agricultural income of all
the above persons exceeds Rs 5000 in the relevant previous
year.
When not to integrate
• Integration is not done in case of (i) firms (ii)
companies (iii) cooperative societies and (iv)
local authorities
• The integration is not done if the non
agricultural income of all persons mentioned
earlier does not exceed Rs 180000 in the
relevant PY
• No integration if the net agricultural income
does not exceed Rs 5000 in the relevant PY
How to integrate
• If all the above mentioned conditions are satisfied, the agricultural
income is added with the non agricultural income
• Tax is calculated on the total at current rates of interest
• Net agricultural income is added with the basic exemption limit
• Tax is calculated on this total at current rates of interest
• Tax calculated in point fourth is deducted out of the tax calculated
in point second
• Add education and higher education cess at 3% on the total amount
of tax
• Total is tax payable
• Tax payable is rounded off to nearest multiple of Rs 10