JK SHAH CLASSES Direct Tax – CA Inter Nov’2023

CHAPTER 12 – AGRICULTURAL INCOME

Section 10(1) :

Agricultural Income from Land Situated in India is EXEMPT under Income Tax

Scheme of Partial Integration :

If the Person is :

Individual / HUF / AOP / BOI / AJP

AND

Net Agricultural Income > ₹ 5,000 Per Annum

AND

Non-Agricultural Income > Basic Exemption Limit

Then,

Scheme of Partial Integration is Applicable

When the Scheme is Applicable, Tax is Calculated in below Steps :

Step 1 : Agricultural Income + Non-Agricultural Income

Basic Tax on Above

Step 2 : Agricultural Income + Basic Exemption Limit

Basic Tax on Above

Prof. Chirag Goyal P a g e 1 | 12

JK SHAH CLASSES Direct Tax – CA Inter Nov’2023

Step 3 : Basic Tax [Step 1 – Step 2] XX

Add / Less Surcharge / (Rebate) (XX)

XX

Add Health & Education Cess @ 4% XX

Income Tax Payable XX

Note: For Applicability of Surcharge / Rebate, Only Non-Agricultural Income is to be considered

E.g.

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

Prof. Chirag Goyal P a g e 2 | 12

JK SHAH CLASSES Direct Tax – CA Inter Nov’2023

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

Definition of Agricultural Income : Section 2(1A)

Rent Income from Agricultural Land

Gives Such Land For Agricultural

Owner of Land Situated in

India Purposes

On Rent*
E.g. Growing Wheat

*Such Rent [Cash / Kind] is Agricultural Income

Note: If Land is given for Any Other Purpose like Movie Shooting, Marriage Functions etc. Then it

is Not Agricultural Income

Taxable as Income From Other Sources

Rent Income from Farm Building

Gives Such Building For Agricultural

Owner of Farm Building

Situated in India Purposes

On Rent*
E.g. Store House

Prof. Chirag Goyal P a g e 3 | 12

JK SHAH CLASSES Direct Tax – CA Inter Nov’2023

*Such Rent is Agricultural Income

Note: If Building is given for Any Other Purpose like Movie Shooting, Marriage Functions etc. Then

it is Not Agricultural Income

Taxable as Income From House Property

Profit from Sale of Agricultural Produce

Sale Value of Agricultural Produce XX

Less: Cost of Cultivation (XX)

Profit* from Sale XX

*Such Profit is Agricultural Income

Agricultural Produce means,

Produce grown by applying

Basic & Subsequent Operations on an Agricultural Land

AND

Only those Processes which are Ordinarily Employed so as to render the Produce fit to be

taken to Market

Following Incomes are also clarified to be Agricultural Incomes :

o Income From Nursery

o Income From Sale of Seeds

Prof. Chirag Goyal P a g e 4 | 12

JK SHAH CLASSES Direct Tax – CA Inter Nov’2023

o Income From Growing of Flowers / Creepers

o Income From Land Given for Grazing of Cattle used in Agricultural Operations

o Income From Growing of Bamboo

Following Incomes are clarified NOT to be Agricultural Incomes :

o Dairy Farming

o Poultry Farming

o Breeding of Live Stock

o Fisheries

o Spontaneous Growth on Soil e.g. Timber grown in Forest

Composite Income :

When BOTH Agricultural and Business Incomes are earned together :

Rules for Splitting Such Composite Income :

Rule No Growing & Business Agricultural

Manufacturing Income Income

7A Rubber 35% 65%

7B Coffee

 Grown & Cured 25% 75%

 Grown, Cured, 40% 60%

Roasted & Grounded

etc.

Prof. Chirag Goyal P a g e 5 | 12

JK SHAH CLASSES Direct Tax – CA Inter Nov’2023

8 Tea 40% 60%

7 Any Other Composite As Per Formula Below

Product

Any Other Composite Product :

Agricultural Income = MV – C

MV Market Value of Agricultural Produce when taken to Factory

C Cost of Cultivation of Agricultural Produce

Business Income = S – MV – ME

S Sale Proceeds of Final Product

MV Market Value of Agricultural Produce when brought to Factory

ME Manufacturing & Other Expenses

Prof. Chirag Goyal P a g e 6 | 12