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What constitutes Agricultural Income?

Agricultural Income is exempt from income tax as per Section 10 of Income Tax Act, 1961. However, for those people who have non-agricultural income (such as business or salary, etc.) the agricultural income is included for the purpose of computing the tax. Suppose, by including agricultural income, the aggregate income of the taxpayer goes to the next tax rate slab, then the he will have to pay taxes at a higher slab.

What is agricultural Income?

  • Income derived from agricultural operations in land situated in India. For example, the income from the cultivation of paddy, wheat, fruits, tea, coffee, spices, etc.
  • The landlord may sub-contract the cultivation work and get a fixed rent from the tenant. The rent so received is also to be considered as Agricultural Income
  • Further any income derived from activities for making the product fit to be marketed. For example, in case of coffee plantation, selling coffee after pulping is also agricultural income
  • Suppose any farm house is built for the use of cultivators to live or  to use as store house; and if any income is received from it is also agricultural income
  • Nursery operations such as selling plants, saplings, seeds, etc are considered as agricultural income and exempt from tax.

Who can claim exemption?

Not just the landlord; even the sub-contractor who has taken the land on lease can also claim exemption from Income tax on his agricultural income. So, one needn’t own the land to get the tax benefit.

What type of agricultural income is taxable as business income?

  • Poultry farming, bee hiving, sale of spontaneously growth trees, dairy farming (including sale of butter and cheese) etc.
  • Purchase of standing crop (ready to cut and sell) and profit derived from the sale of such crop
  • Royalty from mines; Renting out the farm for TV or movie shooting purposes.
  • Income derived from any building or land mentioned above by any other purpose other than agricultural activity i.e. let out for residential purpose or for purpose of any other business or profession.
  • Income derived from Agricultural land situated outside India

Tax on sale of Agricultural Land

Sale of agricultural land will form part of the definition of capital asset and taxed if it land doesn’t qualify to be an agricultural property. To know more Read Capital Gain tax on Sale of Agricultural Land

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