Agricultural Income - PDF

In India, agricultural income refers to income earned or revenue derived from
sources that include farming land, buildings on or identified with an agricultural

land and commercial produce from horticultural land. Agricultural income is
defined under section 2(1A) of the Income Tax Act, 1961. According to this
Section, agricultural income generally means: (a) Any rent or revenue derived
from land which is situated in India and is used for agricultural purposes. (b) Any
income derived from such land by agriculture operations including processing of
agricultural produce so as to render it fit for the market or sale of such produce.
(c) Any income attributable to a farm house subject to satisfaction of certain
conditions specified in this regard in section 2(1A). (d) Any income derived from
saplings or seedlings grown in a nursery shall be deemed to be agricultural
income.
Examples of Agricultural Income

The following are some of the examples of agricultural income:
Income derived from sale of replanted trees.
Income from sale of seeds.
Rent received for agricultural land.
Income from growing flowers and creepers.
Profits received from a partner from a firm engaged in agricultural produce

or activities.
Interest on capital that a partner from a firm, engaged in agricultural

operations, receives.
Examples of Non-Agricultural Income
The following are some of the examples of non-agricultural income:
Income from poultry farming.
Income from bee hiving.
Any dividend that an organization pays from its agriculture income.
Income from the sale of spontaneously grown trees.
Income from dairy farming.
Income from salt produced after the land has flooded with sea water.
Purchase of standing crop.
Royalty income from mines.
Income from butter and cheese making.
Receipts from TV serial shooting in farm house.
Is Agricultural Income Taxable?

As per Section 10(1) of the Income Tax Act, 1961, agricultural income is
exempted from taxation. The central government cannot levy tax on the
agricultural income received. However, agricultural income is considered for rate
purposes while assessing the income tax liability if the following two conditions
are met:
Net agricultural income is greater than Rs. 5,000/- for previous year.
Total income, excluding net agricultural income, surpasses the basic exemption
limit (Rs. 2,50,000 for individuals below 60 years of age and Rs. 3,00,000 for
individuals above 60 years of age).
If these two conditions are met, tax liability shall be computed in the following
manner:
Step 1: Let us regard agricultural income as X and other income as Y Tax

computed on X+Y is B1
Step 2: Let us regard the basic exemption slab for income tax payment as A Tax
computed on A+X is B2
Step 3: The actual income tax liability shall be B1-B2
Note: If the individual’s aggregate agricultural income is up to Rs. 5,000, the

individual will have to disclose the agricultural income in the income tax return
(ITR). In case the agricultural income crosses Rs. 5,000, the individual will have
to disclose the agricultural income in ITR 2.
Section 54B of the Income Tax Act, 1961

Section 54B of the Income Tax Act, 1961, provides relief to taxpayers who sell
their agricultural land and use the sale proceeds to acquire another agricultural
land. To claim tax benefit under Section 54B of the Income Tax Act, the
following conditions will have to be satisfied:
This benefit can only be claimed by an individual or a HUF
The agricultural land should be used by the individual or his or her parents for
agricultural purpose for at least two years immediately preceding the date on
which the exchange of land occurred. In case of HUF, the land should be used by
any member of HUF.
The taxpayer should purchase another agricultural land within two years from the
date of selling the old land. In case it is an incident of compulsory acquisition, the
period of acquiring new agricultural land will be assessed from the date of receipt
of compensation. It must be noted that under Section 10(37), capital gain shall
not be chargeable to tax if agricultural land is compulsorily acquired under any
law, and the consideration of which is approved by the central government or
banking regulator and received on or after 01-04-2004.

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In India, agricultural income refers to income earned or revenue derived from

sources that include farming land, buildings on or identified with an agricultural

Examples of Agricultural Income

Income derived from sale of replanted trees.

Income from sale of seeds.

Rent received for agricultural land.

Income from growing flowers and creepers.

Profits received from a partner from a firm engaged in agricultural produce

Interest on capital that a partner from a firm, engaged in agricultural

Income from poultry farming.

Income from bee hiving.

Any dividend that an organization pays from its agriculture income.

Income from the sale of spontaneously grown trees.

Income from dairy farming.

Purchase of standing crop.

Royalty income from mines.

Income from butter and cheese making.

Receipts from TV serial shooting in farm house.

Is Agricultural Income Taxable?

Step 1: Let us regard agricultural income as X and other income as Y Tax

Step 3: The actual income tax liability shall be B1-B2

Note: If the individual’s aggregate agricultural income is up to Rs. 5,000, the

Section 54B of the Income Tax Act, 1961

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