AGRICULTURAL INCOME

Agriculture income is exempt under the Indian Income Tax Act. This means that income earned from agricultural operations is not taxed. The reason for exemption of agriculture income from Central Taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Legislature

Sources of agricultural Income• As per Income Tax Act income earned from any of the under given

three sources mean Agricultural Income; • (i) Any rent received from land which is used for agricultural

purpose• . (ii) Any income derived from such land by agricultural operations

including processing of agricultural produce, raised or received as rent in kind so as to render it fit for the market, or sale of such produce.

• (iii) Income attributable to a farm house subject to the condition that building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house etc. Now income earned from carrying nursery operations is also considered as agricultural income and hence exempt from income tax.

Tests to Determine Agricultural Income

• Income derived from land

• Land is used for agricultural purposes

• Land is situated in India

Illustrations of Agricultural incomes

• (a) Income from sale of replanted tree• (b) Income from growing flowers and creepers.• (c) Share of profit of a partner from a firm engaged in

agricultural operations.• (d) Interest on capital received by a partner from a firm

engaged in agricultural operations.

• (e) Income derived from sale of seeds.• (f) sale of standing crop by a cultivator• (g) income from growing of flowers• (h) grazing fees realised from piece of land used for grazing of

animals used for agricultural purposes

Certain income which is not treated as Agricultural Income;

• (a) Income from poultry farming.• (b) Income from bee hiving.• (c) Income from sale of spontaneously grown trees.• (d) Income from dairy farming.• (e) Purchase of standing crop.• (f) Dividend paid by a company out of its agriculture income.• (g) Income of salt produced by flooding the land with sea water.• (h) Royalty income from mines.• (i) Income from butter and cheese making.• (j) Receipts from TV serial shooting in farm house is not

agriculture income.

Partly agricultural and partly non agricultural income

crop rule Agricultural income Non agricultural income

Growing and manufacture of tea

8 60% 40%

Rubber manufacturing business

7A 65% 35%

Coffee grown and cured by seller

7B(I) 75% 25%

Coffee grown, cured, roasted and grounded by the seller in India with or without mixing any flavouring ingredients

7B(IA) 60% 40%

Assessment of Agricultural income• with effect from A.Y 1974-75, the agricultural income is

integrated with non agricultural income in certain cases of assesses. The integration is done only when the assessee has both agricultural and non agricultural incomes

• Non agricultural income of the assessee is the computed total income of the assess as per the provisions of the Income Tax Act

Computation of Agricultural income

• Important Points• Any sum paid by the person on account of any tax

levied by State Government on agriculture will be allowed as deduction

• Loss incurred in agriculture will be allowed to be setoff only against gains from agriculture

• Where the net result of agricultural income from various sources is loss, the loss will be disregarded and net agricultural income will be taken as nil.

When to Integrate

• Integration is done only in case of (i) individuals (ii) HUF (iii) AOP (iv) BOI and (v) artificial juridical person

• Integration is done only when the non agricultural income exceeds the basic exemption limit in the relevant previous year

• Integration is done only if the net agricultural income of all the above persons exceeds Rs 5000 in the relevant previous year.

When not to integrate

• Integration is not done in case of (i) firms (ii) companies (iii) cooperative societies and (iv) local authorities

• The integration is not done if the non agricultural income of all persons mentioned earlier does not exceed Rs 180000 in the relevant PY

• No integration if the net agricultural income does not exceed Rs 5000 in the relevant PY

How to integrate

• If all the above mentioned conditions are satisfied, the agricultural income is added with the non agricultural income

• Tax is calculated on the total at current rates of interest• Net agricultural income is added with the basic exemption limit• Tax is calculated on this total at current rates of interest• Tax calculated in point fourth is deducted out of the tax

calculated in point second• Add education and higher education cess at 3% on the total

amount of tax• Total is tax payable• Tax payable is rounded off to nearest multiple of Rs 10