Tax on Agricultural Income in India
India is considered as one of the agrarian country in the world. Majority of rural population is actively involved in Agricultural activities. So lets know the Tax Treatment of Agricultural Income in India under Income Tax Act.
As per Section 10(1) of Income Tax Act, "Agricultural Income of a Tax Payer is exempt from Tax". But now question arises, what is considered as agricultural income under Income Tax Act?
You can also watch this video on Tax treatment of Agricultural Income:
What is Agricultural Income under Income Tax Act?
Agriculture Income is defined under section 2(1A) as:
(a) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
(b) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce.
(c) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A). Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Some points to be noted for Income to be considered as an Agricultural Income
Agriculture Land must be in existence, ownership is not necessary. Income derived from Agricultural activities carried on leased land will also be considered as an Agricultural Income.
Agricultural land must be used for agricultural activities. If income derived from other activities on Agricultural Land then such Income will not be considered as an Agricultural Income. e.g. Agricultural Land leased out for social events or gatherings, such rental income will not be considered as agricultural income.
Mere selling of Agricultural Product will not be considered as Agricultural Income. e.g. Selling of Grains by wholesaler or retailer will not be considered as Agricultural Income.
Processing activity that changes the entire form or characteristics of Agricultural Product will not be considered as Agricultural Income. e.g. Making Mix Fruit Jam from fruits or manufacturing of Tomato Ketchup from Tomatoes.
Income derived from selling of teak woods is not an Agricultural Income
Consideration received from sale of Agricultural Land will not be considered as agricultural Income. [Will be considered under the head Capital Gain (sec 54B)]
Is Agricultural Income completely exempt?