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CA Angad Agnihotri
Contact: +91 8368670843
Email: [email protected]

Agricultural Income
Basics of Agricultural Income

1. Agriculture income is defined u/s 2(1A)

2. Agriculture income is exempt from income tax u/s 10(1) but the income tax act indirectly
collects tax on agriculture income
3. Agriculture income falls within the state list entry number 46, hence shall be levied and
collected by SG
4. Sec 14A- where any expenditure is incurred in relation to exempt income the same shall
not be allowed as deduction

Sec 2(1A) Agricultural Income

Agriculture income means:

1. Any rent or revenue derived from an agriculture land situated in India and used for
agriculture purpose
2. Income from agricultural operation
3. Income from farm house or farm land
4. Income from nursery, sampling, seedling

Agricultural land

There are 2 type of agriculture land:

1. Urban
2. Rural
The Urban land is not defined but the rural land is defined

RURAL AGRICULTURE LAND

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CA Angad Agnihotri
Contact: +91 8368670843
Email: [email protected]

The distance is measured aerially

Explanation:
S.no Particulars Population Result
1 Distance 0 –2 Kms Less than = 10,000 Rural
2 Distance 0 –2 Kms More than 10,000 Urban
3 Distance 0 –6 Kms Less than = 1,00,000 Rural
4 Distance 0 –6 Kms More than 1,00,000 Urban
5 Distance 0 –8 Kms Less than = 10,00,000 Rural
6 Distance 0 –8 Kms More than 10,00,000 Urban

Agricultural operations

The word agricultural operation is not defined in the Act; however, it has been considered by
court in Raja Benoy Sahay case which has provided:
Mere Basic Operation
Mere Subsequent Operation
Subsequent Operation together with basic
Basic Operation:
It means application of human skill and labour upon the land, prior to germination,
example: Tiling of land, sowing of seeds, planting etc.
Subsequent Operation:
It means operations which fosters the growth and preserve the produce for rendering the
produce fit for sale in market and which are performed after the produce sprouts from the
land.
Onus to proof:

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CA Angad Agnihotri
Contact: +91 8368670843
Email: [email protected]

The onus to proof that a particular income is an agricultural income is on the assessee. It is he
who need to place before the Income tax authorities, proper material which will enable them
to conclude that the income sought to be assessed, is an agricultural income

Some agricultural incomes as a result of case laws

1. Income from growing and selling crops

2. Income from growing flowers and creepers
3. Plants sold in pots, provided basic operations are carried on
4. Remuneration and interest to a partner from partnership firm engaged in agricultural
activity
5. Interest on capital received by a partner from a firm engaged in agricultural operations
6. Income arising by sale of trees grown on denuded parts of forest

Some non- agricultural incomes as a result of case laws

1. Salary received by employee from any business (having agricultural income)

2. Dividend received from a company engaged in agricultural operations
3. Income from fisheries
4. Income from poultry farming
5. Income from dairy farming, butter and cheese making etc.
6. Breeding and rearing of livestock
7. Interest received by a moneylender in the form of agricultural produce
8. Profits on sale of standing crops after harvest, where such crops were acquired through
purchase
9. Royalty income from mining
10. Income from supply of water for agricultural operations
11. Income from sale of trees and grasses grown spontaneously (without any human effort)
12. Sale of agricultural land

Rule 7 & 8: Composite agricultural income

Rule Particulars Agricultural Non- Agricultural

7A Growing and manufacturing rubber 65% 35%

7B Growing and manufacturing coffee grown 75% 25%

and cured

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CA Angad Agnihotri
Contact: +91 8368670843
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7B Growing and manufacturing coffee grown, 60% 40%

cured, roasted and grounded

8 Growing and manufacturing Tea 60% 40%

Notes:

1. Bifurcation should be done after claiming PGBP deduction like depreciation etc.
2. If income of assessee partly from business & partly from agriculture then, depreciation
has to be calculated on assumption that total income of assessee is from business only.
Depreciation calculated shall be deemed to be allowed to assessee. (Total depreciation
shall be reduced from WDV of Block).

Composite agricultural income in other cases

Directly Sold:

Sale Value XXX

Less: Cost of cultivation (XXX)
Agricultural Income XXX

Sold after processing:

AGRICULTURAL INCOME PGBP

FMV of the XXX Sale Value XXX
produce
Less: Cost of Less: FMV of Produce (XXX)
cultivation (XXX) Less: Expenses on sale (XXX)
Agricultural XXX PGBP XXX
Income

Method of aggregation / method of partial integration

Applicability: Applicable only to individuals, HUF, AOP and BOI, AJP and NOT Applicable
to firms and companies

Minimum Agricultural Income: Should exceed Rs. 5,000

Other Income: Should exceed Basic Exemption Limit

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CA Angad Agnihotri
Contact: +91 8368670843
Email: [email protected]

Step 1 Agricultural Income + Non-Agricultural Income XXX

Step 2 Tax on step 1 XXX
Step 3 Agricultural Income + Basic Exemption Limit XXX
Step 4 Tax on step 2 XXX
Step 5 Difference of tax (Step 2 – Step 4) XXX
Step 6 Add surcharge / Less Rebate, Add HEC XXX
Step 7 FINAL TAX LIABILITY XXX

Example 1: Miss Vivitha, a resident and ordinarily resident in India, has derived the following
income from various operations (relating to plantations and estates owned by her) during the
year ended 31/03/2024:
S. No. Particulars Amount (in Rs.)
1. Income from sale of centrifuged latex processed from rubber 3,00,000
plants grown in Darjeeling
2. Income from sale of coffee grown and cured in Yercaud, Tamil 1,00,000
Nadu
3. Income from sale of coffee grown, cured, roasted and 2,50,000
grounded in Colombo. Sale consideration was received in
Chennai
4. Income from sale of tea grown and manufactured in Shimla. 4,00,000

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CA Angad Agnihotri
Contact: +91 8368670843
Email: [email protected]

5. Income from sapling and seedling grown in a nursery at 80,000

Cochin. Basic operations were not carried out by her on land.
You are required to compute the business income and agriculture income of Miss Vivitha for the
A.Y. 2024-25.
Ans:
Computation of business income and agricultural income of Miss Vivitha for the A.Y. 2024-25.

S. No. Source of Income Gross (in Rs.) Business Income Agriculture

Income
% Amount
1. Sale of centrifuged 3,00,000 35% 1,05,000 1,95,000
latex from rubber
plants grown in
India.
2. Sale of coffee grown 1,00,000 25% 25,000 75,000
and cured in India
3. Sale of coffee grown, 2,50,000 100% 2,50,000 Nil
cured, roasted and
grounded outside
India.
4. Sale of tea grown 4,00,000 40% 1,60,000 2,40,000
and manufactured in
India
5. Saplings and 80,000 - Nil 80,000
seedlings grown in
nursery in India

Example 2: Mr. Kamal grows paddy and uses the same for the purpose of manufacturing of rice
in his own Rice Mill. The cost of cultivation of 40% of paddy produce is Rs. 7,00,000 which is
sold for Rs. 15,00,000; and the cost of cultivation of balance 60% of paddy is Rs. 12,00,000
and the market value of such paddy is Rs. 24,00,000. To manufacture the rice, he incurred Rs.
2,00,000 in the manufacturing process on the balance (60%) paddy. The rice was sold for Rs.
30,00,000.
Compute the Business Income and Agriculture income of Mr. Kamal.
Ans:
Computation of Business Income of Mr. Kamal
Particulars Amount (in Rs.)
Sale of Rice Proceeds 30,00,000
Less: Market Value of 60% Paddy (24,00,000)
Less: Manufacturing expenses incurred (2,00,000)

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CA Angad Agnihotri
Contact: +91 8368670843
Email: [email protected]

PGBP 4,00,000

Computation of Agricultural Income of Mr. Kamal

Particulars Amount (in Rs.)
Market Value of 60% Paddy 24,00,000
Less: Cost of cultivation of 60% Paddy (12,00,000)
12,00,000
Sale of 40% Paddy 15,00,000
Less: Cost of cultivation of 40% Paddy (7,00,000)
8,00,000
Agricultural Income 20,00,000

Example 3: Ashish Sugars produces sugar after processing. 60% of Sugarcane grown is sold
directly for Rs. 9,00,000. Cost of cultivation for 60% was Rs. 5,00,000; balance 40% was sold
after processing. Fair market value of produce is Rs. 5,00,000; cost of cultivation is Rs.
3,00,000; sale value of sugar is Rs. 9,00,000; Expenses on sale is Rs. 50,000.
Compute the Business Income and Agriculture income of Ashish Sugars.
Ans:
Computation of Business Income of Ashish Sugars
Particulars Amount (in Rs.)
Sale value 9,00,000
Less: Market value of 40% Sugarcane (5,00,000)
Less: Expenses on sale (50,000)
PGBP 3,50,000

Computation of Agricultural Income of Ashish Sugars

Particulars Amount (in Rs.)

Market Value of 40% Sugarcane 5,00,000
Less: Cost of cultivation (3,00,000)
2,00,000
Sale of 60% Sugarcane 9,00,000
Less: Cost of cultivation (5,00,000)
4,00,000
Agricultural Income 6,00,000

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