Introduction: Agricultural income income earned by a taxpayer in India is exempt under Section 10(1) of the Income Tax Tax Act, 191! Agricultur Agricultural al income is defined defined under under section "(1A) "(1A) of the Income#tax Income#tax Act! Act! As per section "(1A), agricultural income generally generally means (a) Any rent or re$enue deri$ed from land %hich is situated in India and is used for agricultural purposes! (b) Any income deri$ed from such land by agriculture operations including processing of agricultural produce so as to render it fit for the mar&et or sale of such produce! (c) Any income attributable to a farm house sub'ect to satisfaction of certain conditions specified in this regard in section "(1A)! Any income deri$ed from saplings or seedlings gro%n in a nursery shall be deemed to be agricultural income! Meaning of Agricultural Income: Section " (1A) of the Income Tax Act, 191 defines agricultural income as an income under the follo%ing three sources* (i) Any rent or revenue derived from land which is situated in India and is used for agricultural agricultural purposes: purpose s: The The assessee %ill not be liable to pay tax on the rent or re$enue arising from agricultural land sub'ect to the conditions* (a) The land should either be assessed to land re$enue in India or be sub'ect to a local rate assessed and collected by officers of the +o$ernment! (b) In instances %here such a land re$enue is not assessed or not sub'ect to local rate, the land should not be situated %ithin the 'urisdiction of a municipality (%hether &no%n as a municipality, municipal corporation, corporation, notified area committee, to%n area committee, to%n committee or by any other name) or a cantonment board, and %hich has a population of more than ten thousand (according to the last preceding census %hich has been published before the first day of the pre$ious year in %hich •
the sale of land ta&es place) or it should not be situated* more than "&ms! from the local limits of any municipality or cantonment board and %hich has
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a population of more than 10,000 but not exceeding 1,00,000 or not being more than &ms! from the local limits of any municipality or cantonment board and
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%hich has a population of more than 1,00,000 but not exceeding 10,00,000 or not being more than -&ms! from the local limits of any municipality or cantonment board and %hich has a population of more than 10,00,000! (c) The re$enue must not include any income arising out of transfer of such land! .urther, a direct nexus bet%een the agricultural land and the receipt of income by %ay of rent or re$enue is essential! (.or instance, a landlord could recei$e re$enue from a tenant!) (ii) Any income deri$ed from such land by agricultural operations including processing of agricultural produce, raised or recei$ed as rent in &ind or any process ordinarily employed by culti$ator or recei$er of rent#in#&ind so as to render it fit for the mar&et, or sale of such produce! (iii) Any income derived from any building owned and occupied by the assessee, receiving rent or revenue from the land, by carrying out agricultural operations: The building must be on or in the immediate $icinity of the land! It must be used by the assesee as a d%elling house or store# house or an out#building, in connection %ith the land! /ence, %e can consider income attributable to a farmhouse as an agricultural income, sub'ect to the abo$e conditions! ormally, ormally, the annual $alue of a building is taxable as income from house property2! /o%e$er, in the case of a farm house, the annual $alue %ould be deemed agricultural income and thus, be exempt from tax! In ad addit dition ion to the abo$e, abo$e, inc income ome deri$ed deri$ed fro from m sap saplin lings gs or se seedl edling ings s gro gro%n %n in nu nurse rsery ry is als also o considered as agricultural income! In order to consider an income as agricultural income, certain points have to be kept in mind: (i) Existence of a land
(ii) !sage of land for agricultural operations: Agricultural operations means efforts induced for the crop to sprout out of the land! The ambit of agricultural income co$ers income from agricultural operations, %hich includes processes underta&en to ma&e the produce fit for sale in the mar&et! 3oth, rent or re$enue from the agricultural land and income earned by the culti$ator or recei$er by %ay of sale of produce are exempt from tax only if agricultural operations are performed on the land! (iii) "ultivation of #and is a must: Some measure of culti$ation is necessary for land to ha$e been used for agricultural purposes! The ambit of agriculture co$ers all land produce li&e grain, fruits, tea, coffee, spices, commercial crops, plantations, gro$es, and grasslands! /o%e$er, the breeding of li$estoc&, a4ua culture, dairy farming, and poultry farming on agricultural land cannot be construed as agricultural operations! (iv) $wnership of #and is not essential: In the case of rent or re$enue, it is essential that the assessee has an interest in the land (as an o%ner or a mortgagee) to be eligible for tax#free income! /o%e$er, in the case of agricultural operations, it is not necessary that the culti$ator be the o%ner of the land! /e could be a tenant or a sub#tenant! In other %ords, all tillers of land are agriculturists and en'oy exemption from tax! In certain cases, further processes may be necessary to ma&e a commodity mar&etable out of agricultural produce! The sales proceeds in such cases are considered agricultural income because the producer2s final ob'ecti$e is to sell his products! %ote: a! Agricultural income is considered for
rate purpose %hile
computing the tax liability
for Indi$idual5/6.5A78537I5Artificial udicial 8erson! b! :osses from agricultural operations could be carried for%ard and set off %ith agricultural income for the next eight assessment years! c! Agriculture income is computed in a manner similar to business income! Exceptions: a! If a person sells processed produce %ithout carrying out any agricultural or processing operations, the income %ould not be regarded as agricultural income! b! :i&e%ise, in cases %here the produce is sub'ected to substantial processing %hich changes the $ery nature of the product (for instance, canning of fruits), the entire operation is not considered as an agricultural operation! The profit from the sale of such processed products %ill ha$e to be apportioned bet%een agricultural income and business income! c! Income from trees that ha$e been cut and sold as timber is not considered as an agricultural income since there is no acti$e in$ol$ement in operations li&e culti$ation and soil treatment! &ax on sale of agricultural land: 3efore 19;0, profit on the sale or transfer of all agricultural land %as considered rent or re$enue deri$ed from the land! Such profit %as, therefore, tax#exempt as agricultural income! There %ere se$eral fa$orable 'udgments of $arious /igh
3, %hich is explained belo%! 'ection *: "apital gain on transfer of land used for agricultural purposes not to be charged in certain cases Section =>3 gi$es relief to a taxpayer %ho sells his agricultural land and ac4uires another agricultural land from the sale proceeds! Conditions to be satisfied to claim the benefit of this Section: a! The assessee must be an indi$idual or a /6.!
b! The agricultural land should ha$e been used for agricultural purposes! It may be a long term asset or a short term asset! c! It must ha$e been used either by the assessee or his parents for agricultural purposes in atleast t%o years immediately preceeding the date on %hich the transfer of land too& place! d! The assessee should ha$e purchased another land, %hich is being used for agricultural purposes, %ithin a period of t%o years from the date of sale! %ote: In case of compulsory ac4uisition, the period of ac4uisition of ne% agricultural land %ill be determined from the date of receipt of compensation! /o%e$er, as per Section 10 (?;), no capital gain %ould be chargeable to tax in case of an indi$idual or /6. if agricultural land is compulsorily ac4uired under any la% and the consideration of %hich is appro$ed by the #"00>! e! The %hole amount of capital gain must be utilised in the purchase of the ne% agricultural land! If not, the difference bet%een the amount of capital gain and the ne% asset %ill be chargeable as capital gains and the tax %ill be computed accordingly! f! The ne% asset purchased should not be sold %ithin a period of three years from the date of ac4uisition! g! If sold, the cost of the ne% asset %ill be reduced by the amount of capital gain (claimed as exemption under Section =>3) for the purpose of computing tax on capital gains! h! here the amount of capital gain is not utilised by the assessee for the purchase of the ne% asset before the due date of furnishing his return of income, he may deposit it in the
et Agricultural income exceeds @s! =,0005# for pre$ious year, and
"!
Total income, excluding net Agricultural income, exceeds the basic exemption limit! ote* If aggregate agricultural income of the assessee is up to @s! =,0005# during .B "01=, then the entire income shall be exempt from tax! Accordingly, you need to disclose the agricultural income in the income tax return (IT@) 1 form to be compliant from the disclosure perspecti$e! 3ut if the agricultural income exceeds @s!=,000, then form IT@ " applies, %hich has a separate column for disclosure of agricultural income! 7nce the aforementioned conditions are satisfied then %e shall compute the Tax liability in the follo%ing manner* ♠ First,
include the Agricultural income %hile computing your income Tax liability!
Cxample D :et us say that an Indi$idual Assessee has a Total income of I@ ;,=0,0005# (excluding Agricultural income) and a et Agricultural income of I@ 100,0005#! Then, per this step, Tax shall be computed on I@ ;,=0,0005# E I@ 1,00,0005# F I@ -,=0,0005#! Thus, income Tax amount as per this step shall be INR 9,!!!"# for an individual $ho is belo$ the age of %! &ears during the '(&( )!*+#* ! ♠ Second,
add the applicable basic tax slab benefit, as applicable, to the et Agricultural income!
Thus, per our example mentioned abo$e %e shall add I@ ",=0,0005# to I@ 1,00,0005# as the applicable Tax slab benefit a$ailable to an indi$idual belo% 0 Bears of age is I@ ",=0,0005#! No$ $e
$ill compute income Tax on INR ,!,!!!"# -Tax slab benefit ),!,!!! . Net /gricultural income *,!!,!!!0( The amount of Tax shall be INR *!,!!!"#( ♠ Third,
subtract the Tax computed in Second step from the Tax computed in 1irst step 2 INR
3,!!!"#! Thus, this is the income Tax liability sub'ect to deductions, Cducation
If agricultural operations are carried out on land, either urban or rural, the income deri$ed from sale of such agricultural produce shall be treated as agricultural income and %ill be exempt from tax! If any industrial organi6ation grows crops and sells half of the produce as raw material in the mar0et and remaining (further processed) as finished goods, what will be the tax treatment3 Agricultural income is exempt from income tax! It does not matter %hether the agricultural operations are done by an industrial organiation or an indi$idual! If any industrial organiation gro%s crops and sells half of the produce as ra% material in mar&et and remaining (further processed) as finished goods, the income %hich is earned on the first half of produce (sold in mar&et as ra% material) is totally exempt from tax! In case of the remaining produce %hich is further processed, scheme of presumpti$e taxation is applicable! @ule ;, ;A, ;3 H - of Income tax @ules deals %ith such type of income! @ule ;A deals %ith Income from manufacture of rubber, ;3 deals %ith Income from manufacture of coffee and @ule deals %ith Income from manufacture of tea! @ule ; says that in cases %here income is partially agricultural in nature and partially from business, the mar&et $alue of the agricultural produce %hich has been raised by the assessee or recei$ed by him as rent in &ind and %hich has been utilised as a ra% material, shall be deducted from the sale receipts and %ill be treated as agriculture income! The remaining %ill be considered as non agricultural income! In my agriculture farm, I have cows in 7une (Maharashtra) &he product being mil0 is the main produce, and not a byproduct Is this income an agriculture income or a taxable income3 (&his mil0 is sold to dairy product plant in nearest "o8op 'ociety) Gairy farming is not an agricultural income! 9 5hy rent on land is treated as agricultural income3 @ent recei$ed from agricultural land used for agricultural purpose is treated as agricultural income! This is prescribed by the la%! I have a business income of ;s 4,--,--- and agricultural income of ;s ,--,--- &hese figures relate to the Assessment year -.8.
Amount in ;s
3usiness Income
?,00,0005#
Agricultural Income
>,00,0005#
Income Including Agricultural Income
;,00,000
Tax on ;,00,0005#
=,0005#
:ess* @ebate on Agricultural Income (Tax on @s! >,00,000 E @s! ",=0,000 being basic exemption) ==,0005# et Tax 8ayable
10,0005#
Add* Cd!
?005#
Total tax 8ayable
10,?005#
-! "an Interest on "rop #oan be claimed as an exemption3 The interest earned on
business to pro$ide ovt &he >ovt paid separate compensation for the land and the crop 5hether the compensation received in lieu of crop is agriculture income or not3 +urther note that assessee has not further invested the amount in agriculture land received as compensation against crop The compensation paid for the crops by the +o$t! can be considered to be as good as income earned by purchase of standing crop, %hich is not an agricultural income! /ence the compensation against crop is taxable in the hands of recei$er of the compensation! .. 5hether income earned from export of agricultural produce is exempt from income tax3 The conditions for considering the income as agricultural in nature ha$e to be satisfied if the agricultural produce has to be exempt from income tax! Liddlemen dealing in trade of agricultural produce are generally not entitled to exemption due to lac& of satisfaction of the conditions! . I have an income of ;s.,,--- from my business and an agricultural income of ;s ?,-,--- 2o I need to file the return of income3 The process of computation of tax liability is follo%ed only if the assessee2s non#agricultural income is in excess of the basic exemption slab! In this case, the income from business of the assessee is lo%er than the basic exemption limit! /o%e$er, the returns ha$e to be filed %ith regards to the disclosure of agricultural income! .4 An assessee wants to buy farms which bear coconut trees, on a lease for a period of one year 'tate whether sale of coconuts is said to be an agricultural income or not3 The land on %hich the coconut trees are planted should be an agricultural land %hich can be classified by fulfilling the conditions mentioned earlier in this article! If the land is agricultural, then the income earned by selling of coconuts can be treated as agricultural income! . I had sold an agricultural land in a rural area, which is outside @urisdiction of the Municipal Authority 5hether the sales proceeds are exempt or taxable3 The scope of agricultural income excludes the re$enue %hich is earned by transfer of agricultural land not falling under the definition of )! 3y definition of a capital asset under Section "(1>), an agricultural land in an area falling out of 'urisdiction of the Lunicipal Authority (%hich has a population of more than 10,000), is not a capital asset! Section 10(?;) allo%s income from transfer of such a land to be classified as a capital gain $ia clause (i)! 6nder Section =>3, a capital gain arising out of this transaction %ill be exempt pro$ided the conditions (mentioned earlier in this article) are satisfied! # See more at* http*55taxguru!in5income#tax5income#tax#treatment#taxability#of#agricultural# income!htmlMsthash!6'&'NlO/!dpuf
