Chapter 12

Agricultural lncornc & its Tax Trcatn1cnt

[Sections 2(/ A) und /0( /)]
. II 11111 I
, . . · . vcr, 11cl 11/'.I u 11
· 10( I) of lhc Income-lax . AL'I ' ( l)('. I cxcm pls ugnc ul111ra l 111co111c li., 1n inrrnnc-lllx . llowc
scc11on 1c-1.i,c AL'I, for Ilic p111p1 1,c ol dclL'fllli11111),t lhL:
incoine is aJclcd 10 lh~ 1~1tul ' .1111-_" ·~r1n,.lr11,~al '".('/"'.": co111p111 cd as per l11cu11 1:11I pcr~.,11. ul1h1111gh IIIL'
i\01'/ llOI or un u1tiliL'1u l j11rul1
•IUX on no11-a gr11 ulru~ al ,,,, fllllc nl un 111d1 v1duul, I IUI·,
·ncome
1 ·cullltial income will remain fully excmpl.
'd df i" f
tl.l summarise e mif1on o Agricultural Income
,gn ISection 2( 1A)I
Agril'ultural im:ome 1ncl11d1ng lhe follo wi ng:
(,) any rcnl or revenue derived [rom land;_
111' agrn; 1d1 111od pr11d11 ce;
(ii) any ;~;;;;-;-;J~ fr:~_>!1.!_ si~ch _l:i~tl _hy :1gric11l111rc or from p1,,-:.:~"11g
(iii) any i~1~1mc from fo~11~b11ilding. g c11nd 111t111\ arc ~:it1 \ licd·
as 'ag1irulr11r,il 111c., 11 ,c· """' 11 1,,,11 thl' 1;,11 11 w 111
The above 1lm:e typ,•s of income shall he ln.:alt·d 111g111 g 1'1 0111 l,111d ,,r ar i, ing
L'X prc~,ion den ved Ji-11111 land wo11 ld rnc;111 ' Ill
(i) /11come should he .!.!_<'rh •,·c!.J.i·'.!!.11 l,_ !/ The
111
he 1he r1r1111cdiatc 11 11d
ch 1he inconic ,prin g, Ilul " ir h , <Hirrc , h11 uld
from land. II poinls lo a source li-0111 0111 or whi 1 Ilic ,0111 1:c lo wl11d1 11
c , 11urcc ; 1h:i1 i,. the proxrn,:irc , , 1111 rc and 1111
clTct:live source and 1101 any sccrnrdary or rc r1101 IJ,i/111 1/111') ( l '14X) I(, n H
d. I( 'IT V Km11, 11./m 1 ,\ '11ru, (II/ Si11~/, ( R11111
may ullimatcly be rclcrah lc has lo he rnnSllkri:
325 (PC)] not he , ulijcc l In
~it 11a1cd any,, hcrc 111 l11d m, 1hoi1gh, 11 n111y or niay
[And should he s.!J!!!..11,,if i11 /11cli,~ : I. und should hi: ,r 1,111d i~ lnrn1eu
1cd Ill an 11rhan iJ IC,I or Ill a rural urea. tire
revenue or any lm:a lrure . The land lllil Y he s1111a 111c;orr re and Ilic
h land ,, il l 11nl he deemed rn he agm:ul111r :d
ide India , any agrirnll11ral i11co111c deri ved fru1n ~ur liom ag1rc ul111rnl
11fa pcr ... 111 rc,1 d111 g 111 l11d1a. ., uch i11l 1,111c
will not enjoy any cxemp1i11n 11/s 10( I ). In the L'asc
w, ,rld 111cu111c J111I ,,1111ld he lrahk lo rax.
situated outsid e India will he i11dmlcJ in hi, tol,d
: ·1he S11 pr cn1e C 011rt 111 Cir
v Nt1111 /J, ·111JI' K,1111111· Sf/h,11 !<in· ( 1'157/
should be used for lll!,l'i:_11lt111·fll p 111111/\°(' 1 ,,f
ilt11rJI purpmt.:~ ,~here the lollow 111g two lypc~
ITR 466 has held lhat lhe land is said In he 11,cd 1,,r agrru
tions are carried 0111 on such land: ng or Ilic
gr111111d. 111 rhe w n,e (If ri lling of rhc l;111d. ,owi
Basic Ope!!!Jions: These in vo lve c11hiv a1ion 111' the ind the ~
c;. pcnd llurc of h11in:.in
Such ba,11: 11pcra 111m, dc111;
.as, e!anling and simil;ir operati ons 1H1 the l.1nJ.
arc dirL'CtL·d to ma~c l11L' rn ,p , prmll lrnn, rhc l,111d.
uran d skill upon 1he land ilsclr and furthe r th~·y which have t11 be
bseq11e11r o,;;:;arioms : /d1cr the er11p spn1111s
frnm the l;1nd. there arc ~uh,e411c11t upt:ra ti '111s
~oil around
ll:t1on of rh..: crop ~uch a~. ,~cedi ng, Jiggi the ng
rteaio by 1he agrii: ult11ri sts for the clfa:icnt prodl 011 of the crop from inwc t, and p<,;::,t!> .ind from dcprc dalion
w!!_i. remo val of undesirable growths. pre, t'1 ll1
cattle and tend111g.:. pn111ing. cut ling. etc. ce
a rcd acti\ ily of the agrit u lt uri,t. 1 he performan
ic and the s~b: cqucnl orcra li;;,s together fo rm the intcgr c,t the ~uh,c 4ucn t opera tions wilh
no1 ht: enou gh to 111,
t opera tions on the produce of the lanu would qua
nctio n with. and in i.:unrinuation of, the ba~ic npcr;ition whic: h is the .1i11'-'
ter. They should be in conju e any incom e is calle d agric ultur al
operation. In other word s. basic opcralions
must be pcrf1irrncd befor

u i~ · ucnvcu ,rom ~~p ~W•-~!:_ ~.:.~lrng~ grow n in

.I • .I f'.
a ,.

(Expla11atio11 3 to section 2(1A)I : Any 111curnc have been

vc of whclhcr the ba\ic opcra11,ins
to be agricultural income. Accordingly. irrcs1wcti I()( I) of
e, thus 4ual1fying for exempt ion under section
ome will be trcatl·d as agrirnlturnl incom
The
I A )(a), :?( I A)(h ) and 2( I A)( c) resrc ct1ve ly.
agricultural incomes ha ve been defin ed u/s 2(
detail as unde r:
is u~ed for aJ.!ricullural purp oses IScclion
ved from land which is situated in India and
ultural income' :
be satisfied 10 trcal ini.:ome derived from land as ·agric
derived from land .
 Simplified Approuch to Income Tax Agricultura/ Income & 11.f Tax Treatment 401
400 12
(ia) Rent from /and: Rent should be a payment in ~!~!!'".J n ki'!_d_or j n money or in muner's 1t arrh , b O
Chap. 12
c~•P~Vbaf docs agriculture indude? . JJ- ., ih.J,,
another in respect ofa grant ofa nght to use la nd . To treat any income o r re ,en u~ ,n thenaiur: 0
nel>er\oo 1o the raising of
f ren1, lheit J2.2 ·culture \\'ould _include ho ~1culture, fl on culture. ~~rieu lture ' and~Zturc. It would include
shou ld be an establis_!ied !ell!.!!,.Q!!ShJll...2,f a __!a ndl? rd and tenant or lessor ~ nd lessee between I -~ plantatio ns. rai s ing ofgm~,. or p,tstures. It wo uld extend to cultivation ofaifcommodities of food value hke
agricultural produce received by a landlord 1s tho ug h m kmd bu t ; ~ ~ e , fo, 11 nd
example. the sbare of
agricultural income.
1
and 1hu, ;.;".:C~e.c~~:;°n~•~~!'d 0
~:~~/ ~ ·, .:~:; c a
1
dccorati\'e \'a lue like flowers and creepers, housing value like bamboo, timber,

'any revenue' would mean _!_nco me _o f C\'ery kmd dern ed from arc derived b h f~ rt
{ib) Re.-enue from land: The expression 0 file/ -alu_e . mJture inconw \\ Otild. ho \\,·,cr. rnvcr onl v those incomes which- - - - ~ - u~~'!.e_ ~
~ •I Agncu • - - ----
.J.mu!,.sltherthan:
iz.:1 A ricultural 111come
(a) rent, o r
(b) the income which fall~ under scctioa 2/ IA )/b) and (c).
I. I g · g incomes ha, C been "'i '"
10 he agricyjmlincome:
'; gr_f~ i'r ul~ft~co f , ,±g~. ".is received by the actual cultivator of the trees.
hould . ,~' ,:;ir~::me from~
(ic) Rent or revenue should be derived from land: This would mean that s uch re nt o r reve nue s agricultural income.
(b) W~ tbe owner ~msdf performs s labghter tapp ing and then sells the rubber the income is
land or arise from land. If the immediate and effective sou rce 1s not land, the income ca nn o t be
co •; ring &0111
agricu~~ income. The following incomes will not be agricult~r.al income as these are not deriv..;'~0
%~be c i.-- .-dcrived b ~~ _!Or fro'!' !,case of ~.Q':?nu1 g ; i ~ 10 _• lessee who pa ys reo1 and 1akes the coconuts

• der from a company carrym_g on agncuhurdl operations is 1101 . ( ) iiaclii..,. ciiiiiiii die term of the lease _and has 10 deliver possess,oo of the coconut garden back to the lessor al

dcr receives the div~f DOI by virtue of any IICtlvitJ o f ~ · ..... o(dlD...,"liNrlld be treated as agnculrural mcome m the bands of the lessor.
effoJ!, by tilling. sowing, planting of any particular kind of seed or cuning. or b y any
~of~~~ .. •
"oos would have been performed. Consequently, the crop would be agricultural and
of grass would be agricultural income.
uld be agriculrural income.
ing of canle required for agricultural pursui~ is agricultural income.
ny~on
i:'..::.:=:.:.::..= !:..:pa.:.:.'. account of ~~~~d to _!'!_e crop j~ ar, agricultural

non-agricultural income. hence taxable:

s~Jn1it_a!'.!!..!}£~o wn spontaneous ly and wi thQut hwnao effon .
eland wit!' ~e~~ and then ~ sting salt therefrom.

in ki~d of any process ordinarily employed to render*

ta n to market . The produce raised from the land~ ·
necessary 10 perfom1 a process on the produce to make:
amy be called markermg process or agncultural process· for the sake
6
value of the produce y such markefiing process -or agn c ulru ra l process 1s also (k) --'In=te==-~c:.c---.
agriculture market mg process 1s performed 0 0 agncultural produce whi ch could be
If sold
001 be (/) Profit o
as the produce was Itself marke table, the income attnbutabk 1o 1he process shall (m) Income
(n) Royalty i
derived from the ~by .!!..£!1!!ivator o r recei ver of rent in kind of the produce raised o r received by him ·any from business - :...<>•,'T' ::•~ J..' l['.-1-1..
2 12.S lnccmi"'ew
of ~hic h ~o . rocess has ~ ~ ~ ~ ~ olh:,r t h a n ~ s s of the natu re as refe rre~'!._ < ) abov~ o1h,r than tea !Ru/, 7J
ee~
from sale ofab'T1cuJ1ural pr uce 1s exempt from Lax- to the extent to which no p rocess has b (A) Income fr is p~ally agricultural and partially non-agricultural. for
th t; its produce to sell them as wafers. In this case the
_ proceeds \\ill h:=~-e~ _e ma_r~ ~ proc: ss. discussed a bove. If any other processes have been pe_rformed.!•a~ An assess
exempt that pan alone ;;,:;:~
1
;~':;;::~fo
d
fio out that part of II which, constitut<!s ag ri c ultural 111co me. example. w ere from business. The composnc mcome has to be

!;~~cl:..:~ !:~ .;~.~r:;t:~~~le 10 8 company has comp any agricultural produce raised by the ass_e ssee
0
building (a farm housa:) is treated as agricultural income pro,•idcd the foJiowing di sintegrated and for co business is deducted . No further deduction ,s
. . _ 1-=llon 2(lA)(c)f or received by him as re a cultivator or receiver of rent in kind. For
(\;j ~~~I~:: '\~nor in thc immediate vicinity o f ~ !!J..1n.w..t..wbich is -used --
for agricultural pu rp~
-
pennissiblc in respect of
be total agricuhural recc1p1 on account
oscs etc. incurred in connection with
(iii) . pi by ~hvator or receiver of rent or revenue. computing agricultural inc
(i,') ~~s ~s~ as (a) ~welluignouse:\OJsl< lre house:- ~~ c-;:J o t h e r ~ of potatoes . From s uch ng
nue o r local rate (hen such receipt will be deduct
sue~ : d i:h:,~~~~: ~~-;;i~~eu=rate . H~er, if ii is no; a,ssessed to la nd reve
For example, in the above c
the Purpose of making its
!fall the above conditions arc satisfied then the inc~me fro m farm building is e"empt from tax.
agricuhurul income sha ll be t
 Simpl/fied Approad, to Income Tax c,•P· 1
% A1vl<u//ural /n,·o~ & It., Tm. Tru,ffflnlt
Jon ll.l : _Gross Total Income of S aged so yea,,.. 403
402 Ch•p. 12 ~ under Income-fa.I AQ,. 1hr for _men,
year 2022-23
for the purpose of computing business income fi"om the safe of_
wan-rs produced fi"om such potntoes
shall be allowed deduction of ?5 lakhs as the cost ofporatoes. bemg
the market value of potatoes grow:i :c
I ~lllpaiii, JlfP',r,t J-fe deposits U0.000 rn • PPF account.
. , 5;o.00o· ute the tax payable by S assuming that he ha,, •gricunora.r i
7A I Y II.
if (ii co:;will be the tax payable by S in _thc aboveca.se.
ifhenpi, :-"1"/oJNil, (lnfS,{J(JO, md/cJ tJ..S0.000.
(B) /nt:o•e from growing t1nd ,nanufat:Juring of rubber (Rule 10
laudun<1erse,a,,., 1139AC_
or latex based crepes ( such as pale fate . (a) and (h) Srnce the agnculluraf income • her
( 1) Income derived from the safe of centrifuged latex or cenex (ii) Wh
or n«ed U.'JOO , a-e -.i.11 be no parti.a.l
bro"'n crepes (such as .:,state bro"n crept,, re-milled crepe,
smoked blanket crepe or flat bar x crep.) or
from field_ latex or coagufum ob; _crepe) or
501orioO }'!e Income-tax will be calculated on t5.00.l)I)() ~f~o.~•~ dt.- nae
2JJ.~,odcducooa under t«t,on II.JC) a osuaJ_ Tu oo
technically specified block rubl:>er.; manufactured or processed ,e,-_,ion;;, be 12 .soo - 12_-500 (Rebate under section 87AJ . Nil.
rubber plants gro"n by !ht, seller m India _shall be _computed as
1
1f II were income derived fi-om bu~ 0ed &olJJ
1ness. alld 00
~- :riOfl (ii): :~0~1J:Q~~~~ ~~~;,,.l~;1,~~~ f:':o~oi:a.~;:~: tcrt,on and the ln<ome-Qll w,ff be ~ OD f~.20 .000 as
35% of such income shall be d.-emed to be mcome habfe to tax. 00 ,s.20,000 will be , 1,..s,,o f:sth«. rd>ote unda 'iCCtJ()l1
tJ«!ucriori :;1d;; !f1owed as his total income exceeds tS.00.000. · ax
2
( ) ~~;;:~~!/~~!~":~: d~~::;::;: •~:~:,;u;: :::c:n°;n~;c;:~~e~~:~~:~~~ rufbber plan~ io
such cosL no deduction ;~af~Uch area has
s11t•h•
1 1 ' f '.
not previously been abandoned. and for_the purpose of determining ·cufruraf and no n-agricultural incomc(tJ.S0,0 00 + sooooo
of section 10(3 I), 1s not includibfe be made in 1;J(c>SltP · · J ~.Y,Yh
respect of the amount of any subsidy which. under the prov1s1ons 101 he101.11 <!f'gareofagn
income.
(C) /n,:o,nefromg ro,.ingand,na nufat:1uringo ft:offu (Rule
7B( ;:on is.so.O O ~ O - - - - - - - - - - - - - - - - - - - - L - - . ! . - - ~!,!2.. =""~")fJ- 1

(a) : : : :::::: {:;: ~~:i:'~.: ~

0
:S";.
~:;h~::0":eth7'i i:
:::~:d~~~~i ~:i~~ t:i,~~:d as if it "ere SttP
1
t,dd: l2,S0,
000 (Maximum exemption limit) to agricufluraJ income of t.3.SO.OOO
~::.:::.. .------- --e_ _ _:.::.:.::..~:.:::.:::::'.:'..._ _ _ _ _ ~6..00~~'..:'.:''-~"h~-- '
--'
,!__

c~::ry :rS:):e~~:::ri;;;:;~e~;:~ :~:fi'~ ':~f;u~::~:~:r. .._---- _;.:;.:: 2.. Y::;Xi:::,:

~~~~= !ti:~
th
~~r!e/~~o:e l~dia, Wi1h or on t6.00,0~00: _~-;::-~-;:::::::-:;::-::--::::=:=:-~::::-: :-:----- -----..:
TaJC J · Deduct Tax ·under Step 2 from Tax under Step I (l82 ,500 _ 32.SOOJ
(b)
business, and 40% of such mcome shall be deemed to be income
(D) lnt:ome from growing and ,nanufacruring of tea (Rule
BJ
liable to tax. enved fro,n
~:f~re. taX 00 non-agricufrura f income

Sl<P 4: Less: Rebate under section 87 A

:::i!\~':;e7 ioh:si:i~:~ 7:~:: !:;;"gtea leaves and then processing it (or manufacturing the same). the

r h~aed head 'profits aod gai~ of

Step I· ~':eorth;ro~ :7~:- ~~;,~;::~n;t h:e~~d~c:O ':u::::,~; u•;:e~:1 3., iJ{_(,

net agricultural income

,i:. 60% of die income computed io Step I will be treated as
· · at, is treated as business income.
if _tile~ earns agricultural income

I 6 .00.())C,·

:3.0UV

India, aged 60 years. earned agriculrunl mromeof U .00.000 dur_,,. ti,,, l'ft"liXb
>= l0 : 1-
be has non-agriculrural ,ocome of:
000.

. .
~ exemption limit available in the case of the asseuae
IN Total Income. not ""-n-J th,, m,uunun c,~.,.. l.u:,u oi U .00.000 !being
k n o ~ ~ o ,,a IIIJ r.u f)A~l>t-ic " " ,,..,.,_~-ult=al mcome
. ofiacome-cax as computed under Step 2 from the tax computed under Step I .
* .Claim-.., amved II.I shall be tow lncome-tax payable by the assessee.
; Add miate under ~bOn 87 A 1f applicable.
llicffkff. dw t,,u.l tu pa,-.bloe " llll

5
surcharge if applicable + health and education cess (!lJ 4% .
 Jl Agricultural Income & Its Tax Treatment
Simplified Approach to [r,come Tax 405
404 cll'P- o;. of the income fro m such business
60
Step 2: Agricultural income + maximum exemption limit ('5.00,000 + 3.00.000) = , s .00.000. (C) roarket value of the agricultural produce minus the expenses on c . .
(D) assessee uses ,ts own agn cultural produce for the purpose of man ul11va11on of such agricultural produce
Tax OD ,s.00.000 = '70.000 JI· Jf tltCtree: the cost of such agncuhural produce for the purpose of com uufactunng cert_ain products olher 1han 1ea. rubber
Strp 3: Tu uoder S1ep I - Tax uodcr Step 2 (t86.000 - 70.000) or co cost of produc ing such agncultural produce P hng business income of manufac1uring shall be:
less: Rebate u/s 87A (100% of tax or t12.500 whichever is less)
(~;
niarket value o f such agricultural produce as on the date of use
( % of market va lue of such agricul!ural produce
60

(II)
Add: Health and education cess @ 4 ¾
Total tax payable
A opts to M taxed uodrr stttioo 11 SBAC
I~: none of thea bo\'e
(C)
assessee u~es the agricultural produce grown by him for his own consumption lhen:
il- (/i( the markel va lue o f such agncultural produce shall be trealcd as his agri cullural income
( Bl the roarket va lue o f th e agncultural produce minus lhe cost of cultiva1ion shall be treated as his agric ultural
m
Stop I AgricullWlll Income + Non-agricul1ural Income. income
7.70.000 (C) nothin g shall be tre aled as his agricultural income
Tax OD ,1,10,000. ,s.00.000 and {8,80.000 40.500 none ofthe _abovc
(D) . . .
~:foo~~~ 2
. : . ~) :ii;i1~~~~ - income + maximum exempt ion limit 37.500
fl. Th• partial in1egra11o n of agn cultu rn l income wnh non agricullural income is done in case of:
(A) all asscssee . .
(8) any 3 ssessce o ther than who IS hable lo be 1a,ed at flat rate of income tax
(C) individual o r HUF onl y . . . . .
.._(J))° individual HUF. AO P or B0 1 & ar11fic1alJud1cial person
PRACTICAL QUESTIONS
per cent of the pro fits of a tea co ~1pnny amounting 10 n ,00.000 is charged 10 Income-tax at the ra1e of 30 .9% and
~
1.,.. 1 40 60%, amounl ing lo t4.50.000 1s exempl from Income-lax being agricultural income. The company pays out o f
a sum of U. 25.000 as divide nd. One shoreho_lder receiving t 11 .250 as divid~nd dauns 60% thereof. i.e.• t b.150
)llllllfliolll taX in his own assessmenl as agn cullural income. Discuss whe1her the claim ,s correc1 or 001.
,t,li.:Dividcnd is ta xable . [See Problem No. 12.1 of Prac1ical Approach to Income Tax]
41; J,fr. Albwani submits the following informal io n regard ing his income for lhc previous year 202 1-22:

5.76 .000
per annum 30 .000
,2 SOO m 60.000
20.000

under section I I 5BAC

. n 115BAC
. Tax Payable '27.980. (b) Total Income t 5,97.000. Tax Payable t 26.'.!10: [See
~~me~
me a ·cultural land near the mill. During the year 202_1-22. he has sho wn a proh. t
Scru~Y of accouots reveals 1hat he has used 5.000 qum1als of wheal produce~ m
debited P&L account. The market pnce of the wheat dunng_the SC'1SOD
ofa . . in the bands o f ~.., fAAl Y\J)J,. . .. ~ business10 income and ca!cula1e the tax pay:,bk by him assuming h< doe,
. lea thaa 60 ymn docs n o t ! ' ~ : ~:~ with non-agncuhural income, if the non-agricul
DOI ex= ~ I integration of agricultural income with non-agricultural income, if the agricultural income docs
(a) d
cost of seeds, manure and fertilisers. e1c.) was t 18.00.000. Assume R:

Malllplc Choice questions

(b) opts _ ,6 00.000: Ta< payable - t 1.09.200. (bl Agn<ultural
JO. ~!~: ::sesscc is engaged in the busi ness of growing and manufacturing tea in India, the agricultural income in 1ha1 case .:.__ , 1.06,600 [See Problem ~,,. l :.5 of Practical
. Aos.: (a)
11\Corne - fl2
(_A~ 25% of the income from such business Approach to lnco
{B? 40¾ of the income from such business
406 Simplified Approach to Income Tax
ANSWERS TO OBJECTIVE QUESTIONS
I.
2.
F
F
6.
7.
t2,20,000
firm as well as partners u--~
~~
. D I
3. T 8. tl,50,000

-===:N
4.
5.
F
Market vaiue of such produce minus
expenses incurred for cultivation of such
9.
10.
C
B
---~.
produce

- I