JAMIA MILLIA ISLAMIA

FACULTY OF LAW

TAX LAW ASSIGNMENT

ON

​AGRICULTURAL INCOME

SUBMITTED TO: SUBMITTED BY:

Ms. Kiran Bala Anam Danish -S.F
Guest Lecturer BA LL.B (hons) 
AGRICULTURAL INCOME 1

What is Agriculture Income? 3

Agriculture Income–Income Tax Act, 1961 4

What is Non- Agriculture Income? 5
There are certain points which should be kept in mind to evaluate whether the
particular agriculture income is valid. These are as follows-: 5

Whether the above mentioned Agriculture Income is Taxable or Not? 5

Section 54B of the Income Tax Act, 1961 6
Whether all Agricultural Land is Exempted from Tax Liability? 7
Whether all the Agriculture Products come under the tax exemption? 7
Whether income earned from the export of agricultural produce is exempt
from income tax? 8

How to file Agriculture Income Tax? How it is computed? 8

What is agricultural income under the Income Tax Act? 9

Agricultural income refers to income earned or revenue derived from

sources that include farming land, buildings on or identified with
agricultural land and commercial produce from a horticultural land.
Agricultural income is defined under section 2(1A) of the Income Tax Act,
1961. According to this Section, agricultural income generally means: 9

(a) Any rent or revenue derived from land which is situated in India and is
used for agricultural purposes. 9

(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 products. 9

(c) Any income attributable to a farmhouse subject to satisfaction of certain

conditions specified in this regard in section 2(1A). 9

(d) Any income derived from saplings or seedlings grown in a nursery shall
be deemed to be agricultural income. 9

Conclusion 11

 
  

What is Agriculture Income? 

Agricultural income in India is categorized as a valid source and

essentially incorporates income from sources that include farming

area, structures on or identified with a rural land and business

deliver from a horticultural land. This income is considered for rate

purposes while ascertaining the income tax liability of an individual.  

Agriculture Income–Income Tax Act, 1961 

Section 2 (1A) of the Income Tax Act, 1961 details out the

conditions wherein sources can be considered to be generating

agricultural income. The following are the sources of agricultural

income –

○ Revenue  generated  through  rent  or  lease  of  land  in  India  that  is  used  for 

agricultural purposes, subject to some conditions which are-: 

○ The land ought to either be evaluated to arrive income in India or be liable to a 

nearby rate surveyed and gathered by officers of the Government. 

○ In the event that for example the land isn’t liable to neighbourhood rate, at 

that point the land ought not to be arranged inside the locale of a region or a 

cantonment board, and which has a populace of more than ten thousand, or it 

ought not to be arranged: 

○ Not being more than 2 kms. from the neighbourhood furthest reaches of any 

region or cantonment board and which has a populace of more than 10,000 

yet not surpassing 1,00,000; or 

○ Not being more than 6 kms. from the neighbourhood furthest reaches of any 

district or cantonment board and which has a populace of more than 1,00,000 

yet not surpassing 10,00,000; or 

○ Not being more than 8kms. from the nearby furthest reaches of any region or 

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

● Revenue  generated  through  the  commercial  sale  of  produce  gained  from 

agricultural land. 

● Revenue  generated  through  the  renting  or  leasing  of  buildings  in  and  around 

the agricultural land subject to the following conditions as follows-: 

○ The cultivator or farmer should have occupied the building, either through rent 

or revenue. 

○ The building is used as a residential place, storeroom or outhouse. 

○ The agricultural land or the land where the building is located is being 

assessed for land revenue or subject to a local rate assessed. 

What is Non- Agriculture Income? 

The below-mentioned list draws exception to that revenue or

income which is generated by doing agriculture work, but that

becomes “​non-agriculture income. ​They are as follows-:

● Revenue  from  the  sale  of processed products of agricultural nature 

without actual agricultural activity. 

● Revenue from extremely processed products. 

● Revenue from trees that have been sold as timber. 

● Income from poultry farming. 

● Income from bee hiving. 

● Income from sale of spontaneously grown trees. 

● Income from dairy farming. 

● Purchase of standing crop. 

● Dividend paid by a company out of its agriculture income. 

There  are  certain  points  which  should  be  kept  in 

mind  to  evaluate  whether  the  particular  agriculture 
income is valid. These are as follows-: 

● Income should be from an existing piece of land. 

● Income  should  be  from  a  piece  of  land  that  is  used  for agricultural 

operations. 

● Income  should stem from products achieved after cultivation of the 

land. 

● Income  can  be  from  a  land  that  is  not  under  the  assessee’s 

ownership. 
Whether  the  above  mentioned  Agriculture  Income  is 
Taxable or Not? 

Under Section 10(1) of the Income Tax Act, 1961, the income

earned from agricultural land is exempted from taxes. Before 1970,

profit on the sale or transfer of all agricultural land was considered

rent or revenue derived from the land. Such profit was, therefore,

tax-exempt as agricultural income. An agricultural land does not

form part of the definition of a capital asset and hence, there will be

no capital gains on the sale of such land.

Any other land not forming part of the above will be a capital asset

and sale of the same shall attract tax on capital gains subject to

Section 54B, which is explained below.

Section 54B of the Income Tax Act, 1961 

Section 54B gives relief to a taxpayer who sells his agricultural land

and acquires another agricultural land from the sale proceeds.

Conditions to be fulfilled to guarantee the advantage of this

Section:

● The assessee must be an individual or a HUF(Amount

received by a member of the HUF from the income of the

HUF, or in case of impartible estate out of the income of

family estate [Section 10(2)]. As per section 10(2), the

amount received out of family income, or in case of an

impartible estate, or the amount received out of the

income of family estate by any member of such HUF is

exempt from tax).

● The agrarian land ought to have been utilized for rural

purposes. It might be a long haul resource or a fleeting

resource.

● It has probably been utilized either by the assessee or his

folks for agrarian purposes in at least two years instantly

 preceding the date on which the exchange of land

occurred.

● The assessee ought to have bought another land, which is

being utilized for agrarian purposes, inside a time of two

years from the date of the offer 

   
Whether  all  Agricultural  Land  is  Exempted  from  Tax 
Liability? 

No, all agricultural land is not exempted. Agriculture income is

included while computation, for the limited purpose of determining

the tax rate, in computing the income tax liability if the net

agricultural income exceeds Rs 5,000 for, say, Financial Year 2015

and total income, excluding net agricultural income, exceeds

applicable basic income exemption of Rs 2,50,000. Currently, the

basic income exemption for an individual of age between 60 and 80

years is Rs 3 lakh for Financial Year 2015 and the basic exemption

for an individual above 80 years of age is Rs 5 lakh.

Whether  all  the  Agriculture  Products  come  under  the 

tax exemption? 

Any preparing done on Agricultural create to make it marketable is

a piece of agricultural operations and such sum recuperated will be

dealt with as agriculture income only. Say for instance threshing of

wheat, mustard, and so forth is a piece of agriculture operations

and the sum recuperated will be dealt with as farming salary just

regardless of preparing happens on the land itself or some other

place.

Be that as it may, in specific cases like on account of tea, coffee,

sugar stick where a noteworthy preparing (change of exceptional

nature of the item) is being done, at that point some piece of the

handled deliver (tea, coffee, and sugar) is taxed as non-farming

pay and rest is absolved as rural salary.

 
Whether  income  earned  from  the  export  of 
agricultural produce is exempt from income tax? 

The conditions for considering the income as agricultural in nature

have to be satisfied if the agricultural produce has to be exempt

from income tax.

NOTE- ​Middlemen dealing in trade of agricultural produce are

generally not entitled to exemption due to lack of satisfaction of the

conditions.

How  to  file  Agriculture  Income  Tax?  How  it  is 

computed? 

Although Agriculture income is completely excluded from tax, the

Finance Act, 1973, introduced a scheme whereby agriculture

income is incorporated with non-horticultural pay on account of

non-corporate assessees who are at risk to pay tax at indicated

section rates. The procedure for money impose calculation for such

surveys is as per the following:

● Income tax is first ascertained on the net horticultural

salary in addition to the assessee’s aggregate pay from

non-farming sources.

● The tax is then ascertained on the fundamental exception

section expanded by the assessee’s net agrarian pay.

● The contrast amongst (a) and (b) is the measure of

expense payable by the assessee.

NOTE​-The previously mentioned procedure of calculation is, be that

as it may, took after just if the assessee’s non-horticultural pay is

an abundance of the essential exclusion section.

   
What is agricultural income under the

Income Tax Act?

Agricultural income refers to income earned or revenue derived
from sources that include farming land, buildings on or identified
with agricultural land and commercial produce from a horticultural
land. Agricultural 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 products.

(c) Any income attributable to a farmhouse 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​.

Example 1

Let’s take a look at agriculture income tax calculations with

examples. Let’s say you are 50 years and earn Rs 6 Lakhs a year
from non agricultural income. You earn Rs 5 Lakhs a year from
agricultural income.
As per agriculture income tax rules, non-agricultural income
exceeds the Rs 2.5 Lakhs a year, basic tax exemption limit. (This is
Rs 3 Lakhs a year for citizens between 60-80 years of age).
Agricultural income exceeds Rs 5,000 a year.

STEP 1:
Add: Agricultural Income + Non Agricultural Income
This is Rs 5 Lakhs + Rs 6 Lakhs = Rs 11 Lakhs.

STEP 2:
Compute tax on the aggregate income:
Income Tax Slab for FY 2017-18

● Total income (Agricultural + Non agricultural) is Rs 11 Lakhs.

You fall in the 30% income tax slab. You have to pay an
income tax of Rs 1,42,500.
●

STEP 3:
Add the basic tax exemption limit for FY 2017-18 to net agricultural
income.
 ● The basic tax exemption limit is Rs 2.5 Lakhs and the
agricultural income is Rs 5 Lakhs.
● The aggregate amount translates to Rs 7.5 Lakhs.

STEP 4:
Calculate income tax on the aggregate of STEP 3. (This is Rs 7.5
Lakhs).

○ The basic tax exemption limit is Rs 2.5 Lakhs.

○ You have to calculate income tax on Rs 7.5 Lakhs.

Income tax on aggregate amount = Rs 62,500.

STEP 5:
Deduct the amount calculated in STEP 4 from the amount
calculated in STEP 2.
This is Rs 1,42,500 – Rs 62,500 = Rs 80,000.

STEP 6:
You have to subtract the rebate you get under Section 87A. If your
total income does not exceed INR 3.5 Lakhs a year, you get an
income tax rebate of INR 5,000 under Section 87A. It is not
applicable in this case.

STEP 7:
Cess on income tax is 4%. You have to pay a cess of 4% on Rs
80,000 which is Rs 3,200. The total income tax is Rs 83,200

Example 2

Agriculture Income = Rs 2,00,000. 

Non Agricultural Income = Rs. 6,00,000. 
Chapter VIA deductions Say u/s 80C = Rs. 50,000. 
Total Income (Rs.6,00,000 – 50,000) = Rs.5,50,000. 

Example 3 :

Non Agriculture Income = Rs. 6,00,000.

Chapter VIA deductions Say u/s 80C = Rs. 50,000.
Total Income (Rs.6,00,000 – 50,000) = Rs.5,50,000.

   
 

Conclusion 
Clearly, notwithstanding agriculture income being charge absolved,

assessees must be careful while managing such pay. They should

ensure that their total rural salary with their aggregate pay has to

stay away from intrigue instalments and conceivable punishments

for camouflage of pay. Assessees should likewise keep up

dependable records to furnish the duty specialists with verification

of responsibility for land and confirmation of having earned farming

pay.

There is sufficient degree of the exhausting wage from exercises

which are non-agriculture in nature. Actually, it is outstanding that

agriculturists themselves don’t have the assessable wage,

considering the way that when it is separated among relatives who

are engaged with farming operations, every last one of them would

include wage inside as far as possible. In any case, there are a

huge number of go-betweens like wholesalers, retailers, merchants,

and so forth who procure significant salary from exchanging

agrarian deliver and additionally natural products, blooms, and so

forth. Such salary or benefits are completely assessable under the

present law and, in this manner, if coordinated endeavours are

made by the Tax Department to recuperate impose from them, the

requirement for broadening the expense base to rope in

agriculturists and ranchers would be eliminated.

References 

[1]

http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx​(

last visited on Dec 14,2017).

[2]

https://taxguru.in/income-tax/income-tax-treatment-taxability-of-a

gricultural-income.html​(last visited on Dec 14,2017).

[3]

http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx​(

last visited on Dec 14,2017).

[4]

http://www.incometaxindia.gov.in/Tutorials/17.%20Exemption%20

under%2054B.pdf​(last visited on Dec 14, 2017).

[5]

https://economictimes.indiatimes.com/wealth/tax/here-are-nine-in

comes-you-need-not-pay-tax-on/articleshow/47538791.cms​(last

visited on Dec 14,2017).