Agricultural Income
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In this post, we will discuss on the topic of Agricultural Income in India.

We will cover the following topics for you:

What is Agricultural Income?

Agricultural income is defined under Section 2(1A) of the IT Act, 1961. It can be of 3 types:

  1. Rent received from the agricultural land situated in India.
  2. Income from the sale of agriculture products.
  3. Income from the farm building required for agriculture purposes.

Note:

  • Any income from saplings /seedlings grown in a nursery is under agricultural income.
  • Income from agricultural activities done on the land (urban/rural) is agricultural income and exempted from tax.

Examples of Agricultural Income

The following are some examples:

  • Income derived from the sale of replanted trees.
  • Income from the sale of seeds.
  • Rent received for agricultural land.
  • Income from growing flowers and creepers.
  • Profits from a partner whose firm engaged in agricultural production/activities.
  • Interest on capital that a partner from a firm in agricultural operations, receives.

Examples of Non-Agricultural Income

Some examples of non-agricultural income:

  • Income from poultry farming.
  • Income from bee hiving.
  • Any dividend an organization pays from its agriculture income.
  • Income from the sale of spontaneously grown trees.
  • Income from dairy farming.
  • Income from salt produced after it is flooded with sea water.
  • Purchase of standing crop.
  • Royalty income from mines.
  • Income from butter and cheese making.
  • Receipts from TV serial shooting in farm house.

Tax applicability and Computation

As per Section 10(1) of the ITA, agricultural income is exempted from taxation. The central government cannot levy a tax on this income.

However, this income is considered for rate purposes while calculating the income tax liability if the 2 conditions are met:

  • Net agricultural income is greater than Rs. 5,000 for the previous year.
  • Total income, excluding net agricultural income, is over the basic exemption limit (Rs. 2,50,000 for individuals below 60 years old and Rs. 3 lakhs for individuals above 60 years old.)

So, the tax liability is then computed as:

Step 1: If Agricultural income is taken as X and other income is Y. The tax computed on X+Y is T1.
Step 2: Basic exemption slab for income tax payment is A. Tax computed on A+X is T2.
Step 3: The income tax liability is T1- T2.

Note:

Rebate u/s 87A, Surcharge, Cess is applicable in addition to the tax calculated.

Rebate on Agriculture Income

A complete tax rebate is possible if:

  • The total agricultural income is < Rs. 5,000.
  • The income from agricultural land is your only source of income (no other income)
  • You have both agricultural income and other income. The total income (excluding agricultural income) is less than the basic exemption limit.

Rebate Computation Process

If your agricultural income is > Rs. 5,000 and has other sources of income then, that year’s tax liability is calculated as:

Step 1:Compute tax on the aggregate income (agricultural income + other income) according to the existing tax rate.

Step 2:Compute tax on the sum of the amount of basic exemption limit plus agricultural income as per the prevailing income tax rates.

Step 3: To arrive at the tax liability for the year, compute (Step1) – (Step 2). This your final tax amount.

Important Points

The valid conditions for an income to be considered as agricultural income are the following:

  1. Income is earned from an already existing piece of land.
  2. Income earned from the products cultivated in the land.
  3. Income from land used only for agricultural purposes.
  4. Income from a land that is not under the ownership of assessee’s.

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