Agriculture is said to be the primary occupation in India. It is usually the only source of income for the large rural population in India. The country as a whole is entirely dependent on agriculture for its basic food requirements. The government has numerous amount of schemes, policies and other measures to promote growth in this sector – one of them being an exemption from income tax.
It may seem like the fact of exemption to income tax is all that we need to know when it comes to the taxation of agricultural income but there is more to it. Let us take a look at the provisions of the law in this regard.
The Income-tax Act has its own definition of agricultural income which constitutes the following 3 main activities:
I. Rent or revenue earned from agricultural land situated in India:
Rent is the amount received to grant the right to use the land. The scope of the possible sources of income that can be derived from land is many. An example would be fees received for renewal of grant of land on lease.
However, the amount received on the sale of land is not covered under the definition of agricultural income.
II.Income from agricultural land in the following ways:
The Income Tax has prescribed rules to make this bifurcation regarding agricultural and non-agricultural produce for products like tea, coffee, rubber, etc
|Operation||Agricultural Income||Non-Agricultural Income|
|Growing and Manufacturing Tea||60%||40%|
|Growing and curing Coffee||75%||25%|
|Coffee grown, cured, roasted, and grounded with or without mixing chicory or other flavouring ingredients||60%||40%|
III. Income derived from farm building required for agricultural operations:
The conditions for classifying income derived from farm building as agricultural income are as follows:
|Aerial distance from municipality*||Population as per last preceding census.|
|Within 2 kms||10,000 to 1,00,000|
|Within 6 kms||1,00,000 to 10,00,000|
|Within 8 kms||> Rs. 10,00,000|
*Municipality includes municipal corporation, notified area committee, town area committee, town committee and cantonment board.
Note: Even where the local population is < 10,000, the land should also not be situated within the jurisdiction of the local municipality or cantonment board.
In cases where the activities have only some distant relation to land like dairy farming, breeding, rearing of livestock, poultry farming, etc. they do not form a part of agriculture income.
The following are some the examples of agricultural income:
Below are some examples of non-agricultural income:
As discussed above, agricultural income is exempt from income tax.
However, the Income-tax Act has laid down a method to indirectly tax such income. This method or concept may be called the partial integration of agricultural income with non-agricultural income. It aims at taxing the non-agricultural income at higher rates of tax.
This method is applicable to individuals, HUFs, AOPs, BOIs, and artificial juridical persons, when the following conditions are met:
In simple terms, the non-agricultural income should be greater than the maximum amount not chargeable to tax (as per the slab rates).
Thus companies, firms/LLP, co-operative societies, and local authorities are excluded from using this method.
Agricultural income is to be shown under the column of Agriculture Income in ITR 1. But ITR 1 applies only when the agricultural income is up to Rs 5,000. In case it exceeds the limit of Rs.5,000, ITR 2 form must be filed.
Section 54B provides relief of capital gains to taxpayers who sell their agricultural land and acquire another agricultural land from the sale proceeds. The conditions for claiming the benefit u/s 54B are:
The exemption amount under section 54B is the lower of the following:
The Union Budget 2023-24 highlighted the following points regarding the agricultural sector:
No, only agriculture income from land situated in India is exempt from tax.
In the case of growing tea 40% of income is taxable as business income and the balance will be exempt as agriculture income.
The agricultural income derived from agricultural operations carried out on urban or rural land is exempt from taxes.
The trees planted on land can be classified as agricultural land if the conditions mentioned earlier in this article are fulfilled. If the land comes within the definition of agricultural land, then the income earned by selling fruits can be treated as agricultural income.
One of the conditions to taxing agricultural income is that the assessee’s non-agricultural income is more than the basic exemption limit. In this case, the income from the business is lower than the basic exemption limit. However, you must file the returns to disclose the exempt agricultural income.
Your agricultural income will be exempted if it fulfils all the criteria. However, to calculate non-agricultural income, your agricultural income will be considered for selecting the liable tax rate.
No, the income from animal husbandry is taxable since it does not come under agricultural income.
There are different rates charged on the income derived from manufacturing tea, coffee, and rubber. 40% is charged on tea, 25% is charged on coffee, and 35% is charged on rubber.