AGRICULTURAL

INCOME
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9/26/2022 BBA 301 Income Tax Laws and Practices

 Recapitulation
Discussion about the Income Tax Act 1961
Discussion about basic terminologies related to income tax act.

9/26/2022 BBA 301 Income Tax Laws and Practices

 Learning Outcome
Learning Outcome KL/PO Level
1. Student shall be able to learn the concept of KL2/ PO1
agricultural income

2. Student will be able to understand the conditions KL2/ PO1

for taxation of agricultural and non agricultural
income
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BBA 301 Income Tax Laws and Practices

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 Contents
 What Is Agricultural Income
 Definition
 Examples Of Agricultural Income
 Non Agriculture Income
 Integration Of Agricultural Income
 Partly Agricultural Income 4

9/26/2022 BBA 301 Income Tax Laws and Practices

 Agricultural income is exempt from tax if it falls within the
definition of Section 2(1A).

Section 2(1A) defines ―agricultural income‖ to mean–

Agricultural (i) any rent or revenue derived from land which is situated in
India and is used for agricultural purposes.
Income (ii) any income derived from such land by agriculture or by the
process employed to render the procedure fit for the market or by
sale of such procedure by a cultivator or receiver of rent in kind.
(iii) Any income from farm building.

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 Contd…
iii) any income derived from any building provided the following conditions are
satisfied—

 The building is in the immediate vicinity of the agriculture land

 It is occupied by the cultivator or receiver of rent or revenue;
 It is used as a dwelling house or store house or out house;

9/26/2022 BBA 301 Income Tax Laws and Practices

 Some specific incomes considered as Income from
agriculture [U/S 2(1A)]

1.Salary and interest on capital received by a partner from a

firm engaged in agricultural operations is agricultural income.
Examples 2.Income from growing flowers and creepers.

3.Compensation received from an insurance company for

damage caused to the crops.

4.Income from sale of seeds.

5 Income earned from giving an agricultural land and lease for

cattle grazing.

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 Some specific incomes shall not be considered as income
from agriculture
1. Interest on arrears of rent in respect of agricultural land.
2. Income from sale of wild grass, bamboo.
Non Agriculture 3. Income from fishing.
4. Dividend paid by a company out of its agricultural
Income income.
5. Income from poultry farming.
6. Income from supply of water used for agricultural land.

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 Particulars

1. Income from interest on arrears of rent payable in No

respect of land used for agricultural purpose
2. Use of land for grazing of cattle required for agricultural Yes
Example produce.
3. Income from lease of land for grazing of cattle required Yes
for agricultural produce.
4. Income from sale of forest trees No
5. Income from agricultural land in Pakistan No
6. Prize money received for accrual of high yielding crops No
7. Amount of compensation received on account of loss due Yes
to rain.

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 Partly Agricultural Income
—
Partly agricultural income consists of both the element of agriculture and business, so non agricultural part of
the income is taxed. Eg:- Mr. X cultivating sugar cane at the same time he has a sugar mill for making sugar
by using his own sugarcane Rule no. 7 and 8 of the income tax act of 1961 regarding to partly agricultural
income. They are,

1 . Profit of business other than Tea –Rule.7

This rule applicable to agricultural produce like cotton, tobacco, and sugarcane etc, here the market value of
the agricultural produce raised by the Assessee for utilizing it as raw material for his business will be
deducted out of the total profit of such Assessee while calculating tax on his income.

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 Profit from Tea manufacturing Rule.8
If a person using his own tealeaves grown by him for his tea manufacturing business,
then 60% of his income will be treated as agricultural income and the remaining 40%
will be treated as business income so he has to pay tax on that remaining part of
income.

3. Income from the manufacturing of centrifuged latex or cenex

CONTD…
If a person manufacturing centrifuged latex by using his own made raw material the,65
% of the income derived from the sale of the same is treated as agricultural income so
he has to pay tax remaining part of the income.

4. Income from the coffee manufacturing

Same as the above mentioned, 75% of the income from the sale of coffee grown and
cured by the seller in India is deemed to be a agricultural income.

While calculating tax on partly agriculture income, income is totaled as business

income. Besides they will get allowances for plating new plants for the damaged ones
but if they received any subsidy from coffee board or tea board , no deduction shall be
allowed.

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 Integration of agricultural
income
Agricultural Income and Tax Liability
Such integration is done when the following conditions are satisfied.

1.Assessee is individual, HUF, Association of Persons, Body of Individuals of

Artificial juridical person.

2.Non-agricultural income of the assessee exceeds the maximum exemption limit

which for the assessment year 2018-19 is Rs. 2,50,000 in the case of individual
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,H.U.F. and senior citizen Rs.3,00,000 & super senior citizen Rs.5,00,000.

3.Assessee’s Net Agricultural Income exceeds Rs.5,000

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BBA 301 Income Tax Laws and Practices
 Contd…
In other words, if the non-agricultural income is less than the tax free limit or Net
Agricultural Income is Rs.5,000 or less, no integration is required. If the above
conditions are satisfied, tax shall be calculated as under:

(a)Aggregate the agricultural income with non-agricultural income and determine the
tax payable on such amount.

(b)Aggregate the agricultural income with the basic exemption limit (Rs.2,50,000 or
Rs.3,00,000, Rs.5,00,000 as the case may be) and determine the tax payable on such
amount. 13

(c)The difference between the tax-computed in step (a) and step (b) will be the tax
payable in respect of non-agricultural income.

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