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Agricultural Income - Taxation

Learning sections

Section 10(1)	Agricultural income exempt from tax.
Section 2(1A)	Definition of Agricultural income
Rule 7, 7A, 8	Special manner of computation of agricultural income for TCR.

Section 10(1). Agricultural Income Exempt From Tax

1. As per section 10(1) agricultural income as defined under section 2(1A) is fully exempt from tax but with a rider. Since agricultural income is exempt from tax it doesn’t form part of total income.

2. The agricultural income has been made exempted since Constitution of India gives exclusive powers to the State Legislature to make laws with respect to taxes on agricultural income. (Entry No. 46 of State List)

Section 2(1a). Meaning of Agricultural Income

(a) Any rent or revenue derived (directly) from land situated in India used for agricultural purpose.

(b) Any income derived from such land by performing following agricultural operations:

(i)

Basic

operation

It is performed generally on land. (e.g. tilling of land, sowing of seed, watering the land, planting and manuring etc.); and

(ii)

Subsequent

operation

It is performed on crops. e.g. weeding, pruning, cutting, harvesting and rendering the produce fit for market);

Only basic operation	Agricultural Income
Both basic and subsequent operation	Agricultural Income
Only Subsequent operation	Non Agricultural Income

Note: Any income derived from saplings or seedings grown in the nursery shall deemed to be agricultural income whether or not basic operation is carried out on land.

(i)	The building is on or in the immediate vicinity of agricultural land.
(ii)	It is occupied by the cultivator or receiver of rent or revenue.
(iii)	It is used as a dwelling house or as a store-house or other out-house.
(iv)	The land is assessed to land revenue or it is situated in rural area.

URBAN AREA		Population (as per latest census)	Distance (Straight distance as crows flies)
(i)	more than 10,000 and upto 1,00,000		2 k.m.	from the local limits of any
(ii)	more than 1,00,000 and upto 10,00,000		6 k.m.	municipality or cantonment
(iii)	exceeds 10,00,000		8 k.m.	board.

P1 : One line questions and answers.

1. Income received from letting of a land situated in India, which is used for agricultural operations is treated as agricultural income. (Yes or No)

2. Income from trees and plants grown by nature on the land is treated as agricultural income. (Yes or No)

3. Income from letting of tractors for agricultural operations is treated as agricultural income. (Yes or No)

4. Income from Tea Garden in Dhaka is treated as agricultural income. (Yes or No)

5. Income from growing and selling of paddy in Kerala is treated as agricultural income. (Yes or No)

6. Income arising from sale of forest trees, wild grass, bamboos and seeds, fruits and flowers which grow on land spontaneously without the aid of human skill and labour, is treated as agricultural income. (Yes or No)

7. A cultivator sells the produce at his own shop at a higher price, the whole of income is treated as agricultural income. (Yes or No)

8. Where the cultivator sells such product which he has purchased from other person the income derived shall be treated as agricultural income. (Yes or No)

9. Income from fisheries is treated as agricultural income. (Yes or No)

10. Agricultural income as defined in section 2(1A) is included in gross total income. (Yes or No) 1

1. Mr. X is a manager of an agricultural farm and received a salary of Rs 90,000 which he claims to be agricultural income and therefore exempt from tax. Is claim of X tenable.

12. Income from supplying of water for irrigation is an agricultural income. (True or False)

13. Income from dairy farming, poultry farming, stone quarries is not treated as an agricultural income. (True or False)

14. Income from growing of flowers and creepers is treated as agricultural income. (True or False)

15. If a firm carries out agricultural activities then any interest or salary received by its partners shall be treated as agricultural income in the hands of partners. (True or False)

16. Dividend / interest received from a company engaged in agricultural activity is treated as an agricultural income. (True or False)

Solution:

1. Yes. This is as per section 2(1A)(a).

2. No, since no agricultural operations performed by the cultivator.

3. No.

4. No, since land is situated outside India.

5. Yes since agricultural operation is performed by the cultivator and land is situated in India.

6. No, since no agricultural operations have been performed by the cultivator.

7. Yes, since cultivator is selling his own produce.

8. No, since no agricultural operations have been performed by the cultivator.

9. No, since fish is not the produced of land.

10. No.

11. No.

12. False.

13. True.

14. True.

15. True.

16. False.

INCOME WHICH IS PARTIALLY AGRICULTURAL AND PARTIALLY FROM BUSINESS

Make only 1 P & L account then divide net profit into 2 parts.		Agricultural Income	Non- Agricultural Income
Rule 7A	Manufacture of rubber.	65%	35%
Rule 7B(1)	Sale of coffee grown and cured by seller.	75%	25%
Rule 7B(1A)	Sale of coffee grown, cured, roasted and grounded by seller in India with or without mixing chicory or other flavouring ingredients.	60%	40%
Rule 8	Growing and manufacturing tea in India.	60%	40%

P1: 100% of income from growing and selling tea in India is treated as agricultural income. (True or False)

P2: 100% of income from manufacturing and selling tea in India is treated as Non-agricultural income. (True or False)

Ans: (1) True, and all its agricultural income shall be exempt from tax. (2) True and all its non- agricultural income shall be taxable.

Partial Integration of Agricultural Income With Non-Agricultural Income

Addition of agricultural income to non agricultural income for computation of tax is known as partial integration. Please do note that it is only for tax purpose that agricultural income is added to normal income. Agricultural income shall never form part of total income.

Conditions

1. The assessee is an Individual or HUF or BOI, or AOP or artificial juridical person. (The integration is not applicable to firm and company); and

2. Non-agricultural income i.e normal income exceeds basic exemption; and

3. Agricultural Income exceeds Rs 5,000.

Computation of Tax

Tax on (Non-agricultural income + Agricultural income) at slab rate	A
Less : Tax on (Agricultural income + basic exemption limit) at slab rate	(B)
Tax	A- B

P1: Explain whether in following cases partial integration shall be done or not.

1. Mr. X’s Business Income Rs 1,50,000. Agricultural Income Rs 5,00,000.

2. Mr. X’s Business Income Rs 8,00,000. Agricultural Income Rs 5,000.

3. X Ltd. Business income Rs 50 crores. Agricultural income Rs 20 crores.

4. Mr. X’s Business Income Rs 6,00,000. Agricultural Income Rs 25,00,000.

Ans: No; No; No; Yes and tax shall be Rs 1,08,150.

P2 : Compute tax . Business Income Rs 9,00,000; LTCG Rs 3,00,000. STCG STT 50,000, Lottery income Rs 40,000. Deduction u/s 80G 1,00,000, Agricultural Income Rs 1,50,000.

Solution:

Computation of total Income

Business Income	9,00,000
LTCG	3,00,000
STCG STT	50,000
Lottery income	40.000
Gross Total Income	12,90,000
Deduction u/s 80G	(1,00,000)
Total Income	11,90,000
Dividing the total income
LTCG	3,00,000
STCG STT	50,000
Lottery	40,000
Normal Income	8,00,000
Agricultural Income	1,50,000

Computation of Tax

LTCG @ 20% of 3,00,000	60,000
STCG STT @ 15% of 50,000	7,500
Lottery @ 30% of 40,000	12,000
Tax on Normal Income + Agricultural Income = 9,50,000 [20% of 9,50,000 - 75,000] 1,15,000 Less: tax on AI + BE [1,50,000 + 2,50,000] [10% of 4,00,000 - 25,000] (15.000)	1,00,000
Total Tax	1,79,500
+ Education cess @ 3%	5,385
Tax	1,84,885

P3: Compute tax of Mr. X LTCG Rs 6,00,000. Agricultural Income Rs 3,00,000. ans: 72,100.

P4: Mr. X earns income from growing and manufacturing tea in India Rs 12,00,000. Compute Tax. ans: 62,830

COMPUTATION OF AGRICULTURAL INCOME UNDER DIFFERENT HEADS

2(1A)(a)		2(1A)(b)		2(1A)(c)
computation u/h other sources		computation u/h Business		computation u/h house Property
s 56 to 59		^s 28 to 44D		s 22 to 27
Rent from land	xxx	Sale of crops	xxx	GAV	xxx
Less : taxes on land	xxx	Less : all business expenses	xxx	Less : MT	xxx
Less : Collection charges	xxx	• Salary		NAV	xxx
Less : Collection charges	xxx	• Irrigation expenses		Less : SD	xxx
^OS _AI	xxx	• Depreciation		Less : Interest	xxx
		______________________	xxx	JP*__________________	xxx

P5: Rent from the building used for agricultural purpose situated in the immediate vicinity of agricultural land Rs 10,00,000. Municipal tax paid Rs 1,00,000. Other Income Rs 4,00,000. Compute Tax. ans: 28,840.

P6: From the following information, compute total income & agricultural income : M98

Income from business — letting cycles on hire 40,000

Lease rent received from lands given to tenants for agricultural operations 48,000

Sale of agricultural produce (landlord’s share) 30,000

Sale proceeds of agricultural lands situated in a village 1,20,000

Fixed deposit interest received from companies on deposits made of sale proceeds of land 18,000

Dividends from an Indian company having rubber plantations 6,000

alary received as a partner from a firm manufacturing tea 36,000

Payments of Government tax on agricultural lands 6,000

Expenses on power, irrigation cess and farm labour 10,000

Purchase of seeds 1,000
Tractor hire charges (for agricultural operations) 2,500
Ans: NAI 94,000; AI 58,500.Tax nil. [Transfer of agricultural land in rural area is not treated as income].

The document Agricultural Income - Taxation | Income Tax for assessment (Inter Level) is a part of the Taxation Course Income Tax for assessment (Inter Level).

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FAQs on Agricultural Income - Taxation - Income Tax for assessment (Inter Level)

1. What is agricultural income?

Ans. Agricultural income refers to the income generated from agricultural activities such as farming, dairy, poultry, fishery, and horticulture. It includes income from the sale of agricultural produce, rent from agricultural land, and income from agricultural-related activities.

2. Is agricultural income taxable?

Ans. In most countries, including India, agricultural income is exempted from income tax. According to the Income Tax Act, agricultural income is not considered as a part of the total income for tax purposes. However, income from non-agricultural sources is taxable.

3. Are there any exceptions to the tax exemption on agricultural income?

Ans. Yes, there are certain exceptions to the tax exemption on agricultural income. If an individual earns income from agriculture-related activities such as processing, packaging, and selling of agricultural produce, it may be considered as non-agricultural income and become taxable. Additionally, income from agricultural land situated in urban areas may also be subject to taxation.

4. How is agricultural income calculated for tax purposes?

Ans. Agricultural income is generally calculated based on the net income derived from agricultural activities. It takes into account the total revenue generated from the sale of agricultural produce minus the expenses incurred in the production process. This net income is then used to determine the tax liability, if applicable, on non-agricultural income.

5. Are there any tax benefits available for agricultural income?

Ans. While agricultural income itself is tax-exempt, individuals engaged in agricultural activities can avail certain tax benefits. These include deductions on expenses related to agricultural activities and investments in agricultural infrastructure. Additionally, farmers may also be eligible for subsidies and government schemes aimed at supporting the agricultural sector.

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