Agricultural Income
Agricultural Income
Agricultural Income
Agriculture income is exempt under the Income Tax Act 1961. 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. From the assessment year 1974-75, agricultural income is
taken into consideration to determine tax on non-agricultural income in certain
cases.
As per Income Tax Act 1961, any income, which is derived from any of
the following sources, will be treated as agricultural income –
1. Any rent or revenue derived from land which is situated in India and is used for
agricultural purposes.
2. Any income derived from such land by agricultural operations including
processing of the agricultural produce, raised or received as rent in kind so as to
render it fit for the market or sale of such produce.
3. Income attributable to a farm house subject to certain conditions
4. Income earned from saplings or seedlings grown in a nursery
According to section 2 (1A), if the following three conditions are satisfied, then the
income derived from land can be termed as agricultural income –
Rent or revenue should be derived from land and it may be in cash or in kind
The land is one which is situated in India. If the land is situated in a foreign
country, then the income derived from it will not be considered as agricultural
income.
The land should be used for agricultural purposes.
The term ‘agricultural purposes’ has not been defined under the Income Tax Act
1961. Therefore we should have a look upon the following important points –
Basic operations: -
Prior to germination, some basic operations are essential to constitute agriculture.
The basic operations would involve expenditure on human skill and labour upon
the land itself and not merely on the growth from the land. The examples of basic
operations are – tilling of land, sowing of seeds, planting and similar kind of
operations on the land.
Subsequent operations:-
Besides the basic operations, there are some subsequent operations which are
performed after the produce sprouts from the land. The examples of subsequent
operations are weeding digging the soil around the growth, removal of undesirable
undergrowths and all operations which foster the growth and the preserve the
same, not only from insects and pests but also from degradation, tending pruning,
cutting, harvesting and rendering the produce fit for the market.
The subsequent operations are performed in conjunction with and in continuation
of the basic operations which constitute part of the integrated activity of
agriculture.
Income from a house property which satisfies the following cumulative conditions,
would be treated as agriculture income and would be exempt from tax by virtue of
section 10(1) –
The building should be occupied by the cultivator or receiver of rent in kind
who can be a landlord or a tenant.
It should be on or in the immediate locality of land situated in India and used
for agricultural purposes.
The cultivator or receiver in kind should by reason of his connection with the
agriculture land requires the building as a dwelling house or as a store house or
other out building
The land is assessed to land revenue or local rate or the land is situated outside
the urban area.
Here urban area means any area which is comprised within the control of any
municipality or cantonment board having a population of not less than 10000
persons upto a maximum of 8 kilometers or within notified distance from the limits
of any such municipality or cantonment board.
If all these above conditions are satisfied, the income from a farm building is
exempt from tax.
Use of building for any other purposes other than agriculture:-
Income would be exempt from tax if land or building is used for agriculture
purposes. If the land or building is used for any other purpose then the exemption
is not available.
For example, if a farmer gives his building on rent for residential purposes then
such income would be chargeable to tax.
For the assessment year 2011-12, net agricultural income of an assessee is Rs.
86000 and non agricultural income is Rs. 1285000. the taxpayer contributes Rs.
40000 towards PPF. Find out the tax if the taxpayer is an individual (22 years).
Solution:-