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. However while computing tax on non-agricultural income agricultural income is also taken into consideration.
What does the term Agricultural Income mean?
As per Income Tax Act income earned from any of the under given three sources meant 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.
In order to consider an income as agricultural income certain points have to be kept in mind:
(i) There must me a land.
(ii) The land is being used for agricultural operations.
(iii) Agricultural operation means that efforts have been induced for the crop to sprout out of the land .
(iv) If any rent is being received from the land then in order to assess that rental income as agricultural income there must be agricultural activities on the land.
(v) In order to assess income of farm house as agricultural income the farm house building must be situated on the land itself only and is used as a store house/dwelling house.
Certain income which is treated as Agriculture Income;
(a) Income from sale of replanted trees.
(b) Rent received for agricultural land.
(c) Income from growing flowers and creepers.
(d) Share of profit of a partner from a firm engaged in agricultural operations.
(e) Interest on capital received by a partner from a firm engaged in agricultural operations.
(f) Income derived from sale of seeds.
Certain income which is not treated as Agricultural Income;
(a) Income from poultery 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.
Certain points to be remembered;
(a) Agricultural income is considered for rate purpose while computing tax of Individual/HUF/AOP/BOI/Artificial Judicial Person.
(b) Losses from agricultural operations could be carried forward and set off with agricultural income of next eight assessment years.
(c) Agriculture income is computed same as business income.
June 28, 2009 at 10:02 am |
if agricultural produce is processed to make it marketable at a place other than the agriculture land then amount charged for such processing will be agriculture income or not ??
please send the reply to my email
June 29, 2009 at 2:22 pm |
Any processing done on Agricultural produce to make it marketable is a part of agricultural operations and such amount recoved will be treated as agricultural income only. Say for example trashing of wheat, mustard, etc is part of agricultural operations only and the amount recoved will be treated as agricultural income only no matter processing takes place on on the land itself or some other place.
But in certain cases like in the case of tea, coffee, sugarcane where a major processing is being done then some part of the processed produce (tea, coffee & sugar) is taxed as non-agricultural income and rest is exempt as agricultural income.
Hope this satisfies you.
July 25, 2009 at 8:39 am |
What if agriculture operation is carried on urban land?
August 1, 2009 at 2:25 pm |
No Matter whether the land is urban or rural agricultural land. If agricultural operations are carried out on land the income derived from sale of such agricultural produce shall be treated as agricultural income and will be exempt from tax.
July 25, 2009 at 7:56 pm |
If any industrial organisation grow crops and sale half of the goods as raw material in market and remaining further processed and sold as finish goods what will be the tax treatment?
August 1, 2009 at 2:27 pm |
Agricultural income is exempt from income tax. no matter agricultural operations are done by an industrial organisation or an individual. If any industrial organisation grow crops and sale half of the goods as raw material in market and remaining further processed and sold as finish goods the income earned on first half of produce which is sold in market as raw material is totally exempt from tax.
The second half of the produce which is further processed in this case scheme of presumptive taxation is applicable. Rule 7,7A,7B & 8 of Income tax rules deals with such type of income. Rule 7A deals with Income from manufacture of rubber, 7B deals with Income from manufacture of coffee and Rule 8 deals with Income from manufacture of tea. . Rule 7 deals generally wich says that in cases in which income is partially agriculture and partially from business the market value of the agricultural produce which has been raised by the assessee or received by him as rent in kind and which has been utilised as a raw material shall be deducted from the sale receipts and will be treated as agriculture income. Remaining will be treated as non agricultural income.
August 16, 2009 at 10:31 am |
in my agriculture farm i am operating 5 cow in Pune ,
Maharashtra .this ic not by product, only product of milk. so is this income is agriculture income or taxable income ? (this milk are sold to dairy product plant in nearest co-op society)
September 5, 2009 at 11:07 am |
dairy farming is not an agricultural income
September 4, 2009 at 11:29 pm |
why rent on land treated as agricultural income? what difference is there if the land is in specified area?
September 5, 2009 at 11:08 am |
Rent received from agricultural land used from agricultural purpose is treated as agricultural income . This is the law.
September 5, 2009 at 1:17 pm |
Thank you. Rent received on building used for agricultural purposes is also ttreated as agricultural income, but it is necessary that land should be on or in the vicinty of the land. What if building is not in the vicinty of the land but still it is used for agricultural purpose. then will it be exempted as agricultural income?? If building is given on rent to the cultivator then will that rent be considered as agricultural income?? Please guide when income received on building be treated as agricultural income and why.