AGRICULTURAL INCOME

Section 2(1A)

Agricultural Income includes: -

(i) Any rent or revenue derived from a land which is situated in India and used for agricultural
purpose.
(ii) Any income derived by the assessee from agriculture.
(iii) Income attributable to a farmhouse which is situated on the agricultural land used as
dwelling house, store house, etc. and such farm building is in rural area.

[Note: - In case of (i) or (ii), rural or urban area land both will do]

For the above purpose rural area means the following: -

1. If the city population is between 10k to 1 lac, then, rural area will be 2 kms outside the
jurisdiction of Municipal Corporation.
2. If population of the city is between 1 lac to 10 lacs, then, rural area will be outside 6 kms from
the jurisdiction of Municipal Corporation.
3. If population of the city is above 10 lacs, then, rural area will be outside 8 kms from the
jurisdiction of Municipal Corporation.

Meaning of Agriculture: -

The word agriculture is not defined in Income Tax Act, but we will take the meaning as
per the normal sense of the word. So, agriculture will include the following: -

(i) Any cultivation on the land [farming];

(ii) Horticulture;
(iii) Forestry;
(iv) Breeding;
(v) Rearing of Livestock;
(vi) Darying;
(vii) Butter and Cheese making;
(viii) Animal husbandry and bee-keeping;

The above mentioned agricultural income, Section 2 (1A), will be exempt from tax u/s
Section 10 (1).
AGRICULTURAL INCOME WHICH IS PARTIALLY EXEMPT AND PARTIALLY
TAXABLE [ Rule 7A, 7B and 8]

Rule 7A: - Manufacture of Rubber

35% of such income will be treated as business income and 65% will be agricultural
income.

Rule 7B: - Growing coffee in India

Part A: - Business of growing and curing of coffee

25% is business income and 75% will be agricultural income

Part B: - Growing, Curing, Roasting and Grinding

40% is business income and 60% is agricultural income

Rule 8: - Growing and Manufacturing Tea in India

40% treated as business income and 60% as agricultural income

CALCULATION OF TAX FOR AGRICULTURAL AND NON-AGRICULTURAL INCOME

Conditions: -

1. Even though agricultural income is exempt, we will consider it for tax calculation.
2. For this purpose, the agricultural income, should be at least Rs.5000.
3. The non-agricultural income should be more than basic exemption limit.

If all the three conditions are satisfied, we will integrate, agricultural income plus non-
agricultural income.

STEPS FOR INTEGRATION

Step 1: - calculate tax on total income [AI + NAI]

Step 2: - calculate tax on [AI + Basic Exemption Limit]

Step 3: - Step 1 Step 2

Step 4: - Add education cess @ 3% on step 3.