Exempted Incomes ncomes not included in Total Income [Section 10] 1962, ete. Agricultural Income is exempted u/s 10(1). However, State Governments impose tax on Agricultural income through the State Laws such as Bengal Income Tax Act, 1944; Maharashtra Agricultural Income Tax Act, Topic Detailed Explanation Meaning The definition u/s 2(1A) is very wide and covers the income of not only the cultivators but also the land holders who might have rented out the lands. Agricultural income may be received in cash or in kind Definition of Agricultural Income u/s 2(14) (2) it may be rent or revenue derived from land situated in india and used for agricultural purposes. (2) it may be income derived from such land by agricultural operations including the processing of agricultural produce, raised or received as rent in kind so as to render itfit for the market or sale of such produce. (3) Agricultural income derived from any building, farmhouse or land utilized in connection with cultivation of agricultural produce. ‘As per Explanation 3 to Section 2(1) income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. Examples ‘Agricultural income 1. Income from growing trade or commercial products like jute, cotton, etc. 2. Plants sold in pots, provided basic operations are performed, 3. Income derived from the sale of seeds. 4, Income arising by sale of trees grown on denuded parts of the forest after replanting and by carrying on subsequent operations, is an agricultural income. 5. Income from growing of flowers and creepers. 6. Rent received from land used for grazing of cattle required for agricultural ies, 7. Income from growing of bamboo. 8 Remuneration and interest to partner: Any remuneration (salary, commission, etc.) received by a partner from a firm engaged in agricultural operation is an agricultural income. interest on capital received by a partner from a firm, engaged in agricultural operation is an agricultural income. Non-agricultural income 1. Income from breeding of livestock, poultry farming, fisheries, dairy farming. 2. Salary received by an employee from any business (having agricultural income) is non-agricultural income. 3. Directors Remuneration and Dividend received from a company engaged in agricultural operation is non-agricultural income. © Siddharth Agarwal. All Rights Reserved. 15.4Exempted Incomes Topic Detailed Explanation ‘4. Income from salt produced by flooding the land with sea-water is non-agricultural income, 5. Income from a land situated outside india. 6. Income from sale of trees and grasses grown spontaneously (without any human effort). ‘Question: Whether income from nursery constitutes agricultural income? Yes, income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income, whether or not the basic operations were carried out on land. Partially Business “Apportionment ofincome in certain cases | Agriculture | Business & Partially fuls income | _ income Agricultural 7A | income from growing and manufacturing 65% 35% Income and sale of RUBBER by the seller in India 7B _ | Income from growing and manufacturing of COFFEE * Income derived from the sale of coffee [ 75% 25% grown and cured by the seller in India ‘Income derived from the sale of coffee [60% 40% ‘grown, cured, roasted and grounded by the seller in india, with or without mixing chicory or other flavouring ingredients, @ _ | Income from growing and manufacturing of | 60% 40% TEA Salary and interest received by a partner from a firm growing and manufacturing tea, coffee or rubber: Such remuneration or interest shall be treated as partly agricultural income and partly business income as stated above. For Other Such as growing sugarcane & manufacturing sugar, growing cotton manufacturing Composite textiles growing jute manufacturing jute bags, growing of tomato's and manufacturing of tomato sauce, growing potato and manufacturing of potato chips ete. Business Income = Sale value of final product (-) Market value of Agricultural produce (-) other expenses. Agricultural Income = Market value of Agricultural produce (-} cost of growing ‘Agricultural produce. Partial integration of agricultural income with non- agricultural income ‘Agricultural income is exempt under section 10(1). However, agricultural income has to be aggregated with non-agricultural income for determining the rate at which non-agricultural income would be subject to tax, in case of individuals, HUF, AOPs & BOls etc., where the ~ (1) agricultural income exceeds %5,000 p.a. AND (2) non-agricultural income exceeds basic exemption limit. ‘The following are the steps to be followed in computation of ta Step 1: Tax on non-agricultural income plus agricultural income Step 2: Tax on agricultural income plus basic exemption limit © Siddharth Agarwal. All Rights Reserved, 15.5Exempted i y4 Incomes ce ‘Step 3: Tax payable by the assessee = Step 1- Step 2 Step 4: Add Surcharge/Deduct Rebate u/s 87A, if applicable. Step 5: Add Health and Education Cess@4%. Solution Computation of total income of Mr. X for the A.Y. 2020-21 {a) Computation of tax liability (age 45 years) For the purpose of partial integration of taxes, Mr. X has satisfied both the condi 1. Net agricultural income exceeds & 5,000 p.a., and 2. Non-agricultural income exceeds the basic exemption limit of € 2,50,000. His scr is. com ited in the ‘ghee manner: Income from salary 2,80,000 Income from House property 2,50,000 Net agriculture income [€ 4,80,000~* 1,70,000] 3,10,000 Less: Exempt under section 10(1) {G,10,000) Zi Gross Total Income 530,000 Less: Deductions under Chapter VFA = Total income 530,000 Step 1: ® 5,30,000 + 3,10,000 =¥8,40,000 Taxon & 8,40,000 = € 80,500 +1 5% Of %2,50,000 plus 20% of83,40,000) 3,10,000 + % 2,50,000 = € 5,60,000 Taxon & 5,60,000 =%24,500 i.e. 5% oF € 2,50,000 plus 20% of & 60,000) Step 3 : £80,500 ~¥ 24,500 = 56,000 Step 4 & 5: Total tax payable = % 56,000 56,000 + 436 of ¥ 56,000 = 58,240. Step2: {b) Computation of tax liability (age 70 years) For the purpose of partial integration of taxes, Mr. X has satisfied both the condi 1. Net agricultural income exceeds ¥ 5,000 p.a., and 2. Non-agricultural income exceeds the basic exemption ‘oF % 3,00,000. © Siddharth Agarwal. All Rights Reserved. 15.6Exempted Incomes His tax liability is computed in the following manner: Step 1: 8 5,30,000 + & 3,10,000 = 8,40,000 Tax on 7 8,40,000 = T 78,000 {ie., 5% of % 2,00,000 plus 20% of 8 3,40,000) Step 2: 2 3,10,000 + 2 3,00,000 = % 6,10,000 Tax on @ 6,10,000 = & 32,000 (i.e. 5% of F 2,00,000 plus 20% of T 110,000) Step 3 : ® 78,000 - % 32,000 = 46,000 Step 4 & 5 : Total tax payable = % 46,000 = 46,000 + 4% of & 46,000 = 47,840 ‘Question Mr. B grows sugarcane and uses the same for the purpose of manufacturing sugar in his Factory. 30% of sugarcane produce is sold for € 10 lacs, and the cost of cultivation of such sugarcane is 7 5 lacs. The cost of cultivation of the balance sugarcane (70%) is ® 14 lacs and the market value of the same is € 22 lacs. After incurring ® 1.5 lacs in the manufacturing process on the balance sugarcane, the sugar was sold for & 25 lacs. Compute B's business income and agricultural income. ‘SOLUTION Computation of Business Income and Agriculture Income of Mr. B Particulars Business ‘Agricultural Income Income z z z Sale of sugarcane (30%) — Agricultural Income Sale proceeds of sugarcane (30%) 10,00,000 ess: Cost of cultivation’ 15,00,000) | _5,00,000 Sale of Sugar (70%) — Both Agricultural Income and Business Income Business income Sale Proceeds of sugar 25,00,000 Tess: Market value of sugar (70%) (22,00,000) Less: Manufacturing €xp. (2,50,000) 1,50,000 Agricultural income Market value of sugar (70%) 22,00,000 Less: Cost of cultivation (14,00,000) |" 8,00,000 Total Business Income & Agricultural Income 150,000 13,00,000 © Siddharth Agarwal. All Rights Reserved, 15.7