CA SHREY RATHI AGRICULTUAL INCOME 12.

SHAHRUKH KHAN

CHAPTER 12
AGRICULTURAL INCOME

"Success is not a good teacher,

failure makes you humble”

PRACTICAL QUESTIONS
Q 1: Mr. Ankit (age: 31 years) has non-agricultural income of ₹ 4,20,000 and agricultural income of ₹ 6,60,000 for the P/Y
2022-23. He deposits ₹ 40,000 in PPF account. Compute his tax liability for A/Y 2023-24.

Sol 1: Computation of tax liability of Mr. Ankit for the A/Y 2023-24:
As non-agricultural income of Mr. Ankit exceeds the maximum amount not chargeable to tax (i.e. first exemption limit) &
agricultural income exceeds ₹ 5,000 then he shall be liable to tax in the following manner:
Particulars Tax (₹)
Step 1: Calculate tax on agricultural income + non-agricultural income = ₹ 10,40,000 1,24,500
Step 2: Calculate tax on agricultural income + first exemption limit = ₹ 9,10,000 94,500
Step 3: Step 1 – Step 2 is tax payable 30,000
Step 4: Less: Rebate u/s 87A if the non-agricultural income does not exceed ₹ 5,00,000 12,500
17,500
Step 5: Health & Education Cess @ 4% 700
Tax Liability 18,200
Note: Deposit in PPF shall be deducted from non-agricultural income before applying steps for computation of tax.

Q 2: Mrs. Sonia (age: 71 years) submits the following information for the A/Y 2023-24:
Particulars (₹)
House property income 4,80,000
Income from other sources 27,000
Income from the business of growing and manufacturing tea in India (gross) 3,00,000
Expenditure on growing and manufacturing tea 35,000
Income from a farm house 50,000
Contribution towards National Saving Certificate VIII issue 60,000
Compute her tax liability for the A/Y 2023-24.
CA SHREY RATHI AGRICULTUAL INCOME 12.2

Sol 2: Computation of tax liability of Mrs. Sonia for the A/Y 2023-24:
Particulars Agricultural Non-
Income (₹) agricultural
Income (₹)
House property income 4,80,000
Income from other sources 27,000
Income from the business of growing and manufacturing tea in India (gross)
₹ 3,00,000
Less: Expenditure on growing and manufacturing tea ₹ 35,000
(to be apportioned in the ratio of 60:40) ₹ 2,65,000 1,59,000 1,06,000
Income from farm house 50,000
Gross Total Income 2,09,000 6,13,000
Less: Deduction u/s 80C: Contribution towards NSC VIII issue - 60,000
Agricultural/Non-agricultural (business) income 2,09,000 5,53,000
As non-agricultural income of Mrs. Sonia (aged 71 years) exceeds the maximum amount not chargeable to tax (i.e. first
exemption limit of ₹ 3,00,000) & agricultural income exceeds ₹ 5,000, then he shall be liable to tax in the following
manner:
Particulars Tax (₹)
Step 1: Calculate tax on agricultural income + non-agricultural income = ₹ 7,62,000 62,400
Step 2: Calculate tax on agricultural income + first exemption limit = ₹ 5,09,000 11,800
Step 3: Step 1 – Step 2 is tax payable 50,600
Step 4: Less: Rebate u/s 87A if the non-agricultural income does not exceed ₹ 5,00,000 -
50,600
Step 5: Add: Health & Education Cess @ 4% 2,024
Tax liability of Mrs. Sonia 52,624
Tax liability (rounded off to the nearest multiple of ₹ 10) 52,620

Q 3: Mr. B grows sugarcane and uses the same for the purpose of manufacturing sugar in his factory. 30% of sugarcane
produce is sold for ₹ 10 lacs, and the cost of cultivation of such sugarcane is ₹ 5 lacs. the cost of cultivation of the balance
sugarcane (70%) is ₹ 14 lacs and the market value of the same is ₹ 22 lacs. After incurring Rs.1.5 lacs in the manufacturing
process on the balance sugarcane, the sugar was sold for ₹ 25 lacs. Compute B’s business income and agricultural income.
[ICAI Study Module]

Sol 3: Computation of Business Income and Agricultural Income of Mr. B:

Particulars Business income Agricultural Income
(₹) (₹) (₹)
Sale of sugar
Business income
Sale Proceeds of sugar 25,00,000
Less: Market value of sugar (70%) 22,00,000
Less: Manufacturing exp. 1,50,000
1,50,000
Agricultural income
Market value of sugar (70%) 22,00,000
Less: Cost of cultivation 14,00,000 8,00,000
Sale of sugarcane
Agricultural Income
Sale proceeds of sugarcane (30%)
10,00,000
Less: Cost of cultivation
5,00,000 5,00,000
13,00,000
CA SHREY RATHI AGRICULTUAL INCOME 12.3

MULTIPLE CHOICE QUESTIONS

1. Definition of Agriculture Income is given under section:
(a) 2(1B) (c) 2(1C)
(b) 2(1D) (d) 2(1A)

2. Agriculture Income from outside India is:

(a) fully exempt from tax (c) partially chargeable to tax
(b) fully chargeable to tax (d) none of the above

3. There will be no partial integration of agricultural income with non-agricultural income, if the non-agricultural income
does not exceed:
(a) ₹ 5,000 (c) ₹ 10,000
(b) ₹ 50,000 (d) Basic exemption limit

4. Mr. Kumar has agricultural land in Delhi which he has sold and has earned long term capital gains of ₹ 10 Lakhs. Mr.
Kumar claims it to be his agricultural Income?
(a) He is correct (c) He is partially correct and partially incorrect
(b) He is not correct (d) None of the above

5. If any person earns income from allied activities like animal husbandry, dairy farming, fishery etc. then it is:
(a) Considered to be agricultural Income
(b) Considered to be income u/h PGBP.
(c) Partial agricultural income & partial non-agricultural income
(d) Any of the above depending on the assessee

6. A person holds shares of ABC Ltd which is an Indian company and the company is engaged in agricultural operation
and person has received dividends of ₹ 12,000 and he claims it is his agricultural Income. Discuss whether it is:
(a) fully taxable (c) fully exempt as it is dividend from Indian company
(b) fully exempt as an agricultural income (d) taxable beyond ₹ 10,000.

7. If any partner has received share of profits from a firm having Income from Agriculture activities.
(a) It will be considered to be agricultural Income and exempt from tax
(b) It will be considered to be Income from PGBP
(c) It will be considered to be Income from PGBP but exempt from tax u/s 10(2A)
(d) it will be considered as partial agricultural income & partial non-agricultural income

8. An assessee has incurred ₹ 1,00,000 on the cultivation of agricultural produce. 50% of the produce has been sold for ₹
1,10,000 and the balance 50% has been used by the assessee for his self-consumption, the agricultural income in this
case shall be:
(a) ₹ 1,10,000 (c) ₹ 60,000
(b) ₹ 55,000 (d) ₹ 1,00,000

9. Income derived from sugarcane plantation in USA but received in India shall be treated as:
(a) agricultural income and hence exempt
(b) agricultural income but taxable under the head income from other sources
(c) exempt as earned outside India.
(d) taxable as income from business and profession

10. Which of the following would be agricultural income—

(a) Income from breeding of livestock
(b) Income from poultry farming
(c) Rent received from land used for movie shooting
(d) Rent received from land used for grazing of cattle required for agricultural activities
CA SHREY RATHI AGRICULTUAL INCOME 12.4

11. The proportion of agricultural and business income in case of income derived from the sale of coffee grown and cured
by the assessee in India is—
(a) 65% and 35%, respectively (c) 75% and 25%, respectively
(b) 60% and 40%, respectively (d) 70% and 30%, respectively

12. If the assessee is engaged in the business of growing and manufacturing tea in India, the agriculture income in that
case shall be:
(a) 60% of the income from such business.
(b) 40% of the income from such business
(c) market value of the agricultural produce minus the expenses on cultivation of such agricultural produce
(d) none of the above

13. If the assessee uses its own agricultural produce for the purpose of manufacturing certain products other than tea,
rubber or coffee the cost of such agricultural produce for the purpose of computing business income of
manufacturing shall be:
(a) cost of producing such agriculture produce
(b) market value of such agriculture produce as on the date of use
(c) average of cost & market value
(d) any of the above depending on the assessee

14. If an assessee uses the agriculture produce grown by him for his own consumption then:
(a) the market value of such agriculture produce shall be treated as his agriculture income
(b) the market value of such agriculture product minus the cost of cultivation shall be treated as his agriculture
income
(c) nothing shall be treated as his agriculture income
(d) none of the above

15. If a partnership firm earns agriculture income then—

(a) it will be exempt in the hands of firm
(b) it will be exempt in the hands of firm but taxable in the hands of the partners
(c) it will be exempt in the hands of firm as well its partners
(d) it will be taxable in the hands of firm but exempt in the hands of the partners

16. Income derived from rubber plantation in Singapore but received in India shall be treated as:
(a) agricultural income and hence exempt
(b) agricultural income but taxable under the head income from other sources
(c) taxable in Singapore and thus not taxable in India
(d) 65% agricultural income and hence exempt & 35% non-agricultural income and hence taxable u/h PGBP

17. An individual aged 64 years has income from nursery of ₹ 4,00,000 & private tuition income of ₹ 3,00,000. Compute
his tax liability.
(a) Nil (c) ₹ 5,200
(b) ₹ 52,000 (d) None of the above

18. A HUF (Karta’s age is 66 years) has agricultural income of ₹ 2,80,000 and non-agricultural income of ₹ 4,50,000. The
HUF has invested ₹ 50,000 in PPF. Compute the tax liability of the HUF.
(a) Nil (c) ₹ 60,840
(b) ₹ 7,800 (d) ₹ 31,200

19. Agriculture Income is exempt provided the:

(a) land is situated in anywhere in India (c) land is situated in any rural area in India
(b) land is situated in any urban area in India (d) land is situated whether in India or outside India.
CA SHREY RATHI AGRICULTUAL INCOME 12.5

20. From the following information, compute agricultural income for Mr. Roy:
i. Income from farm house – ₹ 65,000
ii. Income from fisheries – ₹ 85,000
iii. Income from coffee grown, cured, roasted & grounded in Kerala – ₹ 1,00,000
iv. Income from tea grown in Srilanka – ₹ 50,000
v. Life insurance premium paid – ₹ 20,000
(a) ₹ 1,45,000 (c) ₹ 1,75,000
(b) ₹ 2,80,000 (d) ₹ 1,25,000

21. Which of the following statements is/are true in respect of taxability of agricultural income under the Income-tax Act,
1961? (ICAI MCQ Booklet)
(i) Any income derived from saplings or seedlings grown in a nursery is agricultural income exempt from tax u/s
10(1)
(ii) 60% of dividend received from shares held in a tea company is agricultural income exempt from tax u/s 10(1)
(iii) While computing income tax liability of an assessee aged 50 years, agricultural income is required to be added to
total income only if net agricultural income for the P.Y. exceeds ₹ 5,000 and the total income (including net
agricultural income) exceeds ₹ 2,50,000.
(iv) While computing income tax liability of an assessee aged 50 years, agricultural income is required to be added to
total income only if net agricultural income for the P.Y. exceeds ₹ 5,000 and the total income (excluding net
agricultural income) exceeds ₹ 2,50,000.
Choose the correct answer:
(a) (i) and (iii) (c) (i) and (iv)
(b) (ii) and (iii) (d) (i), (ii) and (iv)

MCQ’s Answers
1. (d) 2. (b) 3. (d) 4. (b) 5. (b) 6. (a) 7. (c) 8. (c) 9. (b) 10. (d)
11. (c) 12. (a) 13. (b) 14. (c) 15. (c) 16. (b) 17. (a) 18. (d) 19. (a) 20. (d)
21. (c)

CASE BASED MCQ

1. Mr. Kishan is engaged in the following activities on agricultural land situated in India, total area of land is 5 acres.
Activity A: He grows saplings or seedlings in a nursery spreading over on one acre land, the sale proceeds of which is ₹
5,00,000. Cost of plantation is ₹ 1,40,000. Basic operations are not performed for growing saplings or seedlings.
Activity B: He grows cotton on 3 acres land. 40% of cotton produce is sold for ₹ 4,00,000, the cost of cultivation of
which is ₹ 2,25,000. The cost of cultivation of balance 60% cotton is ₹ 3,37,500 and the market value of the same is ₹
6,00,000, which is used for the purpose of manufacturing yarn. After incurring manufacturing expenses of ₹ 1,00,000,
yearn is sold for ₹ 8,50,000
Activity C: Land measuring 1 acre is let out to Mr. Ramesh on monthly rental of ₹ 15,000 which is used by Mr. Ramesh
as follows:
- 50% of land is used for agricultural purpose
- 50% of land is used for non-agricultural purpose.
Based on the facts of the case scenario given above, choose the most appropriate answer to the following questions:
[ICAI MCQ Booklet]

1.1 What amount of income arising from activity A would constitute agricultural income in the hands of Mr. Kishan?
(a) ₹ 5,00,000 (c) ₹ 3,60,000
(b) Nil (d) ₹ 1,40,000
CA SHREY RATHI AGRICULTUAL INCOME 12.6

1.2 What amount of income from activity B with respect to sale of cotton would constitute agricultural income or/and
business income in the hands of Mr. Kishan?
(a) ₹ 1,75,000 as agricultural income
(b) ₹ 1,75,000 as business income
(c) ₹ 1,75,000 as agricultural income and ₹ 2,62,500 as business income
(d) ₹ 4,00,000 as agricultural income

1.3 What amount of the income from activity B with respect to sale of Yarn constitute agricultural income or/and
business income in the hands of Mr. Kishan?
(a) ₹ 1,50,000 as agricultural income
(b) ₹ 2,62,500 as agricultural income and ₹ 1,50,000 as business income.
(c) ₹ 3,37,500 as agricultural income and ₹ 1,50,000 as business income
(d) ₹ 4,12,500 as business income

1.4 What amount of income arising from activity C constitute agricultural income or otherwise in the hands of Mr.
Kishan?
(a) Whole amount of 1,80,000 would be agricultural income
(b) Whole amount of 1,80,000 would be business income
(c) ₹ 90,000 would be agricultural income and ₹ 63,000 is chargeable to tax as income from house property
(d) ₹ 90,000 would be agricultural income and ₹ 90,000 is chargeable to tax under the head “Income from Other
Sources”

1.5 Compute the gross total income of Mr. Kishan for the P.Y. 2022-23, assuming he has no other source of income.
(a) ₹ 2.40,000 (c) ₹ 5,02,500
(b) ₹ 3,30,000 (d) ₹ 2,13,000

MCQ’s Answers
1.1 (c) 1.2 (a) 1.3 (b) 1.4 (d) 1.5. (a)