Agricultural

Income
Prepared By:
Ms. Mandeep Kaur

Agricultural Income
The Income-tax Act, 1961 does not define
what agricultural income is.
Its definition is wide and
inclusive. It tells us which
incomes are agricultural
incomes. It covers the
income of cultivators and
land-owners both.
2
Section 10 (1)

Agricultural Income is
fully exempted as per
Income Tax Act 1961,
u/s 10(1)
What is Agriculture Income?
Section 2(1A)
Agricultural income includes the following:
Any rent or revenue derived from land;
Any income derived from such land by
agriculture or from processing of agricultural
produce;
Any income from farm building.
Subject to Three Conditions
These three types of agricultural income shall be treated as ‘Agricultural
income’ only when following conditions are satisfied:
 Income From Land
 Land Situated in India
 Land used for Agricultural Purpose :
Basic Operations : It involves cultivation of the ground like tilling of land,
sowing of seeds, planting etc. and involves expenditure of human labour.
Subsequent Operations: It involves subsequent operation for efficient
production of the crop such as weeding, digging the soil around the growth,
prevention of crop from insects, removal of undesirable growth etc.
The above three types of Agricultural incomes have
been defined u/s 2(1A)(a) ,2(1A)(b) and 2(1A)(c)
The definition of ‘agricultural income’ under section 2(1A) provides
that the following shall constitute agricultural income:
(i) any rent or revenue derived from land which is situated in India
and is used for agricultural purposes [Section 2(1A)(a)]
(ii) any income derived from such land by agricultural operation
including processing and sale of the agricultural produce as rent-in-
kind so as to render it fit for the market [Section 2(1A)(b)],
(iii) income derived from building or land used for agricultural
operation, in certain cases. [Section 2(1A)(c)]
(i) any rent or revenue derived from land which is situated in India and
is used for agricultural purposes [Section 2(1A)(a)]

• Rent • Revenue
Rent should be the payment in ‘Any revenue’ means:
 Cash or  Rent or
 Kind or  Income which falls under section 2(1A) (b)
 Money or (c)

 Money’s worth.
• By one person to another
• In respect of a grant of a right to use land.
EXAMPLE: share of agricultural produce If the immediate and effective source is not
received by a landlord is though in kind but it land , the income cannot be considered to be
is rent and thus agricultural income. agricultural income
Following are not Agricultural Income (Not derived from land)
Contd.,

• Dividend received by shareholder from a company carrying on

agricultural operations.
• Loan obtained by a shareholder out of accumulated profits of a
company having only agricultural income.
• Interest on arrears of cess or rent payable by a tenant to his
landlord.
• Commission earned by a broker for selling agricultural produce.
• Salami or Nazarana paid.
(ii) any income derived from such land by agricultural operation
including processing and sale of the agricultural produce as rent-
in-kind so as to render it fit for the market [Section 2(1A)(b)],
(1) Any income derived by agriculture from land situated in India and used
for agricultural purpose. Following will be treated as income derived
from agricultural land:
Standing crop or raw produce after harvest, sold by agriculturist himself;
Crop used as raw material by the cultivator in his business.
(2) Income derived by a cultivator or receiver of rent-in-kind of any
process ordinarily employed to render the produce raised or received by
him to make it fit to be taken to the market:
The gain in the value of the produce by such agricultural process or
marketing process is classified as income from agriculture.
Contd.,
(3) Income derived from the sale by a cultivator or receiver of rent-in-
kind of the produce raised or received by him in respect of which no
process has been performed other than a process of the nature as
referred in point no. 2 :
Income from sale of agricultural produce is exempt from tax to the
extent to which no process has been performed except marketing
process.
Income derived from building or land used for agricultural operation,
in certain cases. [Section 2(1A)(c)]

1. Building is on or in immediate vicinity of land situated in India

and used for agricultural purpose.
2. It is occupied by cultivator or receiver of rent or revenue.
3. It is used as (a) dwelling house; (b) store house
4. Land should be assessed to land revenue or a local rate.
Note: If it is not assessed to land revenue or a local rate, then it
should be situated in rural area.
 Agricultural Income includes:
• Income from Toddy : if actual cultivator of the trees receives income.
• Income from Rubber: if owner himself performs slaughter tapping.
• Lease rent from Coconut Garden:
If leasee pays the rent and takes coconut during term of lease.
Deliver possession of coconut garden to lessor at the term end.
• Lease rent from land leased out for grazing cattle : If leased out for grazing of cattle in
agricultural pursuit.
• Sale of Grass: If grass is grown by human efforts and all basic operations would have
been performed.
• Sale from Flowers and Creepers: If income is from growing flowers and creepers.
• Insurance Compensation : on account of damage caused to the crops.
• Sale of Seeds: income derived on account of cultivation by the assessee.
Non-Agricultural Income
Following incomes have been held to be non- agricultural income, hence TAXABLE:
• Income from sale of forests, trees, wild grass, fruits and flowers grown without human effort.
• Salt produced by flooding the land with sea water and then extracting salt therefrom.
• Stone quarries.
• Breeding of livestock.
• Dairy farming, butter and cheese making.
• Poultry Farming.
• Fisheries
• Preserved Potatoes
• Brick Making.
• Supplying surplus water to agriculturists.
• Interest on arrears of rent.
• Letting out of land/godowns for storing crops.
• Royalty incomes of mines.
• Profit on sale of standing crops/agricultural produce purchased by assessee.
Income which is partially agricultural and
partially from Business
• Income from growing and manufacturing of any product other
than tea [Rule 7]
For computing agricultural income the market value of agricultural produce will be total agricultural
receipt on account of potatoes. From such agricultural receipts, expenses such as cultivation expenses etc.
incurred in connection with such receipt will be deducted and balance will be agricultural income which
will be exempt.

• Income from growing and manufacturing of rubber [Rule 7A]

• Income from growing and manufacturing of coffee [Rule 7B]
• Income from growing and manufacturing of tea [Rule 8]
 Contd.,
Corp Rule Agricultural Business Income
Income

Growing and Manufacture of Tea 8 60% 40%

Rubber manufacturing business 7A 65% 35%

Coffee grown and cured by seller 7B(1) 75% 25%

Coffee grown, cured, roasted and grounded by the seller in India with 7B(1A) 60% 40%
or without mixing chicory or other flavouring ingredients
Tax on Non-Agricultural Income if
assessee earns agricultural income also
• Integration is done only for – individual/ HUF /BOI.
• It is not done for Firm, Company/ Co-operative Society/ Local Authority.
It is done only when:
1.Net Agricultural income exceeds INR 5,000/- for P.Y. 2019-20, and
2. Total income, excluding net Agricultural income, exceeds INR 2,50,000/-.
Note that the aforementioned condition at Serial No.2 shall change to INR
3,00,000/- in case if the Assessee is an individual who falls in the age
bracket of 60 to 79 Years during the P.Y. 2019-20, and to INR 5,00,000/- in
case if the Assessee is an individual who is of the age of 80 Years or more
during the P.Y. 2019-20.
Contd.,
Step 1: Add Agricultural income and Non-agricultural income and
calculate tax on aggregate.
Step 2: Add agricultural income to the maximum exemption limit and
calculate tax.
Step 3: Tax Payable= Tax in Step 1- Tax in Step2
Step 4: Claim rebate under section 87A if applicable.
Step 5: Add Surcharge , if applicable+ health & Education Cess @4%
Question
A, resident in India, aged 60 years, earned
agricultural income of Rs.5,00,000 during previous
year 2019-2020. Compute his tax liability
assuming that he has non-agricultural income of :
a. Rs.2,70,000
b.Rs.3,00,000
c. Rs.3,80,000.
 Solution
(a) and (b) – Since non-agricultural income does not exceed maximum
exemption limit of Rs. 3,00,000 (being individual of the age of 60 years
or more) there will be no partial integration and tax payable on non-
agricultural income will be NIL. Further , agricultural income is exempt.
Therefore, total tax payable is NIL.
(C) Step 1: Agricultural Income + Non- Agricultural Income
= Rs.5,00,000 +Rs.3,80,000 = Rs. 8,80,000
Tax on Rs. 8,80,000 :
First Rs.3,00,000 = NIL
Next Rs.2,00,000 (5%) = 10,000
Balance Rs.3,80,000 (20%) =76,000
Total Tax = Rs.10,000+Rs.76,000 = Rs.86,000
Step 2: Agricultural Income +Maximum Exemption limit
= Rs.5,00,000 + Rs.3,00,000 = Rs. 8,00,000
Solution Contd.,
Tax on Rs. 8,00,000 :
First Rs.3,00,000 = NIL
Next Rs.2,00,000 (5%) = Rs.10,000
Balance Rs.3,00,000 (20%) =Rs.60,000
Total Tax = Rs.10,000+ Rs.60,000 = Rs.70,000
Step 3: Tax under Step1 – Tax under Step 2 (Rs. 86,000 – Rs.16,000
Rs.70,000)
Less: Rebate u/s 87A (as total income does not exceed Rs. Rs.12,500
5,00,000)
Rs.3,500

Add: Health & Education Cess @ 4% Rs.140

Total Tax Payable Rs.3,640

 Question
Mr. A is the owner of a flour mill and some agricultural land near
the mill. During the year 2019-20, he as shown a profit of Rs. 36
lacs from the business of flour mill. Scrutiny of accounts reveals
that he has used 5,000 quintals of wheat produced in his own
farms and cost of this wheat has not been debited to Pand L A/c.
The market price of the wheat during the season was Rs. 600 per
quintal. Compute his agricultural and business income and
calculate the tax payable by him assuming he does not have any
other income.
The cost of cultivation of Wheat (Which includes cost of seeds,
manure and fertilizers, etc.) was Rs. 18,00,000.
Solution
• Wheat produced in his own farms = 5,000 quintals
• The market price of the wheat = Rs. 600 per quintal
So Market Value of Wheat , which have been used in its own flour mill = 5,000
quintals * Rs. 600 per quintal = Rs. 30,00,000
Cost of cultivation of Wheat = Rs. 18,00,000
Therefore, agricultural income shall be = Rs. 30,00,000 – Rs. 18,00,000
= Rs. 12,00,000
This agricultural income shall be exempt.
For calculating business income of flour mill , company shall be allowed deduction
of Rs.30,00,000 as the cost of wheat, being the market value of the wheat.
Income from the business of flour mill = Profit from the business of flour mill – Cost
of Wheat to the business of flour mill (i.e Market Value of Wheat )
Income from the business of flour mill = Rs. 36 lacs – Rs. 30,00,000
Income from the business of flour mill = Rs. 6,00,000
Solution Contd.,
Step 1: Agricultural Income + Non- Agricultural Income
= Rs.12,00,000 +Rs.6,00,000 = Rs. 18,00,000
Tax on Rs. 18,00,000 :
First Rs.2,50,000 = NIL
Next Rs.2,50,000 (5%) = Rs.12,500
Next Rs.5,00,000 (20%) = Rs.1,00,000
Balance Rs.8,00,000 (30%) = Rs. 2,40,000
Total Tax = Rs.12,500+ Rs.1,00,000 + Rs. 2,40,000 = Rs.3,52,500
Step 2: Agricultural Income +Maximum Exemption limit
= Rs.12,00,000 +Rs.2,50,000 = Rs. 14,50,000
Tax on Rs. 14,50,000 :
First Rs.2,50,000 = NIL
Next Rs.2,50,000 (5%) = Rs.12,500
Next Rs.5,00,000 (20%) = Rs.1,00,000
Balance Rs.4,50,000 (30%) = Rs. 1,35,000
Total Tax = Rs.12,500+ Rs.1,00,000 + Rs. 1,35,000 = Rs.2,47,500
Solution Contd.,
Step 3: Tax under Step1 – Tax under Step 2 (Rs.3,52,500 Rs.1,05,000
– Rs.2,47,500)

Less: Rebate u/s 87A (as total income exceed Rs. 5,00,000) NIL

Rs.1,05,000

Add: Health & Education Cess @ 4% Rs.4,200

Total Tax Payable Rs.1,09,200

Thank You