Chapter 11

Agricultural Income
Section 10(1) of the Income-tax Act, 1961 exempts agricultural income from income-tax !o"e#er, net
agricultural income is a$$e$ to the total non-agricultural income compute$ as per Income-tax Act, for the
purpose of $etermining the income-tax on non-agricultural income of an in$i#i$ual, !%&, A'()*'I or an
artificial +uri$ical person, although the agricultural income "ill remain full, exempt
Summarised definition of Agricultural Income
[Section 2(1A)]
Agricultural income inclu$ing the follo"ing-
(i) an, rent or re#enue $eri#e$ from lan$ "hich is situate$ in In$ia an$ use$ for agricultural purposes.
(ii) an, income $eri#e$ from such land /, agriculture or from processing of agricultural pro$uce to ma0e it
fit for the mar0et.
(iii) an, income from farm /uil$ing situate$ on or in the imme$iate #icinit, of agricultural lan$ an$ use$ as
(a) $"elling house. (b) store house. or (c) other out /uil$ing &urther such lan$ should be assessed to
land revenue or a local rate. However, if it is not assessed to land revenue or local rate then such land
should be situated outside urban area.
Use of building or land for purpose other than agriculture shall not constitute agricultural income- Income
$eri#e$ from an, /uil$ing or lan$ referre$ to in su/-clause (c) a/o#e arising from the use of such /uil$ing or
lan$ for an, purpose (inclu$ing letting for resi$ential purpose or for the purpose of an, /usiness or profession)
other than agriculture shall not /e agricultural income
Non- agricultural income
&ollo"ing incomes ha#e /een hel$ to /e non-agricultural income, hence taxa/le-
(a) Income from sale of forests, trees, "il$ grass, fruit an$ flo"ers gro"n spontaneousl, an$ "ithout
human effort
(b) Income from salt pro$uce$ /, floo$ing the lan$ "ith sea "ater an$ then extracting salt therefrom
(c) Income from stone 1uarries
(d) Income from /ree$ing of li#estoc0
(e) Income from $air, farming, /utter an$ cheese ma0ing
(f) Income from poultr, farming
(g) Income from fisheries
(h) (reser#ation of potatoes /, refrigeration as it is not a process or$inaril, emplo,e$ /, a culti#ator
(i) Income from /ric0 ma0ing
(j) Income from suppl,ing surplus "ater to other agriculturists
(k) Interest on arrears of rent in respect of agricultural lan$
(l) (rofit on sale of stan$ing crops)agricultural pro$uce purchase$ /, the assessee
(m) Income $eri#e$ from letting out of lan$)go$o"ns for storing crops
(n) 2o,alt, income of mines
(o) Annuit, pa,a/le to #en$or of agriculture lan$ or pa,a/le to a person gi#ing up his claims to piece of
agricultural lan$
(p) !ar#est Crop on purchase$ lan$
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(q) Compensation)$amages pai$ for loss of agricultural income $ue to late pa,ment of instalments of the
consi$eration price of ru//er plantation site
(r) 2egistration fee collecte$ from the contractor "ho is /i$$ing at the auction con$ucte$ for sale of
plantation is not an agricultural income as such registration fee ha$ no nexus "ith lan$
Income hich is partiall! agricultural and partiall! from business
(A) Income from growing and manufacturing of tea, rubber and coffee
Nature of Income
Amount of
Agricultural
Income
Non-agricultural
Income i"e"
business income
1. Income from sale of tea gron and manufactured /, the
assessee in In$ia
603 of such Income 403 of such Income
2. Income from rubber plants gron /, the seller in In$ia
653 of such Income 653 of such Income
3. Income $eri#e$ from the sale of coffee gron and cured /,
the seller in In$ia
753 of such Income 853 of such Income
4. Income $eri#e$ from the sale of coffee gron# cured#
roasted and grounded /, the seller in In$ia
603 of such Income 403 of such Income
($) Income from growing and manufacturing of any product other than tea [Rule 7]
An assessee ma, ha#e composite /usiness income "hich is partiall, agricultural an$ partiall, non-
agricultural, for example, "here 9:; <t$ gro"s potatoes an$ further processes its pro$uce to sell them as
"afers In this case the compan, has composite income i.e. from agriculture an$ from /usiness =he composite
income has to /e $isintegrate$ an$ for computing /usiness income the mar0et #alue of an, agricultural pro$uce
raise$ /, the assessee or recei#e$ /, him as rent in 0in$ an$ utilise$ as ra" material in his /usiness is $e$ucte$
>o further $e$uction is permissi/le in respect of an, expen$iture incurre$ /, the assessee as a culti#ator or
recei#er of rent in 0in$ &or computing agricultural income the mar0et #alue of agricultural pro$uce "ill /e total
agricultural receipt on account of potatoes &rom such agricultural receipts, expenses such as culti#ation
expenses etc incurre$ in connection "ith such receipt "ill /e $e$ucte$ an$ /alance "ill /e agricultural income
"hich "ill /e exempt
&or example, in the a/o#e case, if the mar0et #alue of the potatoes gro"n /, the compan,, "hich ha#e /een
use$ for the purpose of ma0ing its o"n "afers, is 2s 5 la0hs an$ the cost of culti#ation of such potatoes is 2s 4
la0hs &rom the /usiness income of "afers 2s 5 la0hs i.e the mar0et #alue, shall /e $e$ucte$ an$ no other
expense shall /e allo"e$ for such potatoes 'n the other han$, the agricultural income shall /e 2s 1 la0h (5
la0hs - 4 la0hs) =his agricultural income of 2s 1 la0h shall /e exempt
%a& on non-agricultural income if the assessee earns agricultural income also
=here is no tax on agricultural income /ut if an assessee has non-agricultural income as "ell as agricultural
income, such agricultural income is inclu$e$ in his =otal Income for the purpose of computation of Income-tax
on non-agricultural income
=his is $one onl, in the case of-
(i) in$i#i$ual.
(ii) !%&.
(iii) A'()*'I.
(iv) Artificial +uri$ical person
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=his a$$ition is $one to compute the tax on non-agricultural income onl, "hen the follo"ing t"o con$itions are
satisfie$-
(i) non-agricultural income of the assessee excee$s the maximum exemption limit
(ii) the >et Agricultural Income excee$s 2s 5,000
'omputation of ta& here there is agricultural income also- =he follo"ing steps shoul$ /e follo"e$ to
calculate the tax-
Step 1- A$$ agricultural income an$ non-agricultural income an$ calculate tax on the aggregate as if such
aggregate income is the =otal Income
Step 2- A$$ agricultural income to the maximum exemption limit a#aila/le in the case of the assessee an$
compute tax on such amount as if it is the =otal Income
Step (- ?e$uct the amount of income-tax as compute$ un$er Step 8 from the tax compute$ un$er Step 1
=he amount so arri#e$ at shall /e total Income-tax pa,a/le /, the assessee
Step )- ?e$uct the amount of re/ate, if an,, a#aila/le un$er section @@A =he /alance amount so arri#e$ at
shall /e the tax pa,a/le in respect of such income
Step *- A$$ surcharge, if applica/le
Step +- A$$ e$ucation cess B 83 an$ S!AC B 13
,uestion 1- Cross =otal Income of S as compute$ un$er Income-tax Act, for the assessment ,ear 800@-09 is 2s 1,70,000 !e
$eposits 2s 80,000 in a ((& account Compute the tax pa,a/le /, S assuming that he has agricultural income of ( a) >il. (b)
2s 5,000. an$ (c) 2s 1,50,000
,uestion 2- A, a resi$ent in In$ia, age$ 6@ ,ears, earne$ agricultural income of 2s 6,00,000 $uring the pre#ious ,ear 8007-
0@ Compute his tax lia/ilit, assuming that he has non-agricultural income of-
(a) 2s 1,50,000. (b) 2s 1,95,000. (c) 2s 8,90,000
,uestion (- =he =otal Income of Drs A, resi$ent in In$ia, compute$ for assessment ,ear 800@-09 is 2s 8,10,000 "hich
inclu$es long-term capital gains of 2s 60,000 an$ "inning of lotteries 2s 80,000 an$ short-term capital gain co#ere$ un$er
section 111A 2s 10,000 Compute the tax pa,a/le assuming his agricultural income for the pre#ious ,ear "as 2s 50,000
,uestion )- 2 has rente$ out his agricultural lan$ to S "ho uses the same for agricultural purposes As per the agreement, ESE
"ill pa, the rent in the shape of agricultural pro$uce from the lan$ to 2 2 has recei#e$ $uring the pre#ious ,ear agricultural
pro$uce #alue$ at 2s 60,000 !e has consume$ agricultural pro$uce "orth 2s 40,000 for his o"n consumption an$ the
/alance has /een sol$ /, him for 2s 80,000
Compute the total income for the assessment ,ear 800@-09 assuming he is getting a salar, of 2s 9,000 pm from : <t$
!e has no other income Also compute the tax pa,a/le /, him
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