What is meant by agricultural income? How many types is this? Explain any ten such incomes which are related to land but are not agricultural income. (Meerut 2009, 2006, 2005B; Rohilkhand, 20092006 Imp )
Generally, agricultural income means the receipt of produce etc. from doing agricultural work, is called agricultural income, but in income-tax ‘agricultural income’ has been explained in a certain and specific sense.
Definition of Agricultural Income
According to Section 2 (1A) of the Income Tax Act, agricultural income has the following meanings:
Rent received from land situated in India and used for agricultural purposes or
Income derived from land which is
(i) engaged in agriculture
(ii) the cultivator or the rent-receiver of the land for doing work ordinarily to make the produce produced or received by him marketable, or
(iii) by sale of the produce produced or received by him to the cultivator or the rent-receiver of the land.
Income to the farmer or the rent recipient of the land from the building which is owned and held by him if the following conditions are satisfied
(i) The building is situated on or very close to that land and is used by the cultivator or the payee of the land for residence or as a storehouse or as an outlying house.
(ii) This land is taxed in India or any local tax which is assessed and collected by the government officials. If this land does not attract any tax or local tax, then this land should not be situated within the following limits, which are called urban limits
(A) within the limits of a municipality or cantonment board having a population of 10,000 or more; either
(b) 8 km from the local limits of such municipality or cantonment board. m. To the distance or to such distance as may be budgeted by the Central Government in the Official Gazette for the urbanization of that area.
From the assessment year 2014-15 , if the land is not subject to tax or local tax and the farm house is situated in the following area, then the income of such house will not be agricultural income Is :
(i) within an area of two kilometers from the local limit, if the population thereof exceeds ten thousand but does not exceed one lakh.
(ii) within an area of six kilometers from the local limit, if the population there is more than one lakh but does not exceed ten lakh.
(iii) within an area of eight kilometers from the local limit, if the population there exceeds one million.
Income from Plant Nursery – Considered as agricultural income – Income from selling small plants grown in nursery or small plants grown from seeds will be considered as agricultural income. (Effective from assessment year 2009-10)
Important point to keep in mind regarding agricultural income
1. The land should be situated in India. If the land is situated outside India then the income of such land will not be treated as agricultural income.
The land should be used for agricultural purposes i.e. tilling the land, watering, sowing seeds, etc. Therefore, income from selling self-grown grass on the land will not be considered as agricultural income.
2. The recipient of income from the land should have interest in the land, only the interest of the land owner or tenant or mortgagee is considered to be in the land. Therefore, the income earned by buying the finished crop and selling it after cutting it will not be considered as agricultural income.
3. Any income will be treated as agricultural income only if it is directly derived from agriculture. Indirect income from agriculture is not agricultural income, e.g. salary of manager of agricultural farm, dividend received from company engaged in agricultural work, is not agricultural income.
Kinds of Agricultural Income
On the basis of the above-described definition of ‘agricultural income’ provided in section 2 (1A) of the Income Tax Act, agricultural income can be divided into the following five parts:
Rent or rent received from the land
If the owner of the land gives the right of land to any other person to use his land for agricultural work, then it is his agricultural income.
Income derived from doing agricultural work on the land
The income received by any person (land owner, tenant, land mortgage or any other person) as a result of doing agricultural work on the land will be called agricultural income. Agricultural activity refers to activities such as plowing the land, watering, sowing seeds, growing crops, etc.
Income from the process of making the produce obtained from the land salable
Sometimes the produce obtained from the land is not salable. The agricultural activity that a farmer performs to make his produce marketable and the income derived from it, is considered as agricultural income. For example, the process of making tobacco, coffee etc.
Income received by the farmer from the sale of agricultural produce
The income generated by the farmer himself or by selling the produce received as rent in the market or selling it in his own shop is called agricultural income.
Income from agricultural building used for agricultural purposes
A building which is situated on or very near agricultural land and is used by the farmer or the rent payer as a residence, storehouse or outlying house, agricultural building It is called The income earned from such building is also called agricultural income.
Agricultural Income and Tax Liability
Agricultural income is exempt from income-tax as per section 10(1) of the Income Tax Act. Till the assessment year 1973-74, agricultural income was completely tax free, that is, neither income-tax was levied on agricultural income nor it was included in the total income to calculate income-tax on other incomes, but in the assessment year 1974. Agricultural income is taken into account while determining the tax liability of an individual or Hindu undivided family taxpayer from -75. On fulfillment of both the following conditions, agricultural income will be separately added to the total income and firstly the gross income tax on aggregated income will be determined and after that the tax exemption will be deducted from agricultural income and marginal rate.
If the total income of the individual or Hindu undivided family taxpayer (excluding agricultural income) exceeds the tax-exempt limit, (tax exempt limit in respect of general taxpayer is 2,50,000 in respect of assessment year 2017 18, 60 years or more but 80 3 lakh in case of male and female resident person below the age of 80 years and 5 lakh in case of resident person who is 80 years or more.
The amount of agricultural income is more than Rs.5,000. If both the above conditions are satisfied, the tax will be computed as follows Step I : Total income + Agricultural income = Income tax on the combined income at the prescribed rates Step II : Deduct : Agricultural income + Income tax on the amount of effective tax free limit of income ( -) income-tax payable