Agricultural income earned by a taxpayer in India is exempt under Section 10(1).Agricultural income generally means:
Agricultural income generally means:
(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 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).
(d) Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Tax on sale of agriculture land:
An agricultural land in rural India does not form part of the definition of a capital asset and hence, there will be no capital gains on the sale of such land. Please check the municipal records(municipality) to ascertain whether agricultural land is rural or urban.
Please refer our blog on capital gains:
Agricultural income is considered for rate purposes:
Agricultural income is considered for rate purposes while computing the income tax liability, if following two conditions are cumulatively satisfied.
- Net Agricultural income exceeds Rs. 5,000/- for previous year, and
- Total income, excluding net Agricultural income, exceeds the basic exemption limit.
Once the aforementioned conditions are satisfied then we shall compute the Tax liability in the following manner:
First, include the Agricultural income while computing your income Tax liability.
Example – Let us say that an Individual Assessee has a Total income of INR 7,50,000/- (excluding Agricultural income) and a Net Agricultural income of INR 100,000/-. Then, per this step, Tax shall be computed on INR 7,50,000/- + INR 1,00,000/- = INR 8,50,000/-. Thus, income Tax amount as per this step shall be INR 95,000/- for an individual who is below the age of 60 Years.
Second, add the applicable basic tax slab benefit, as applicable, to the Net Agricultural income. Thus, per our example mentioned above, we shall add INR 2,50,000/- to INR 1,00,000/- as the applicable Tax slab benefit available to an individual below 60 Years of age is INR 2,50,000/-. Now we will compute income Tax on INR 3,50,000/- (Tax slab benefit 2,50,000 + Net Agricultural income 1,00,000). The amount of Tax shall be INR 10,000/-.
Third, subtract the Tax computed in Second step from the Tax computed in First step = INR 85,000/-. Thus, this is the income Tax liability subject to deductions, Education Cess etc., as applicable.
This process of computation is, however, followed only if the assessee’s non-agricultural income is in excess of the basic exemption slab.
Income Tax Return:
If the aggregate agricultural income of the assessee is up to Rs. 5,000/- disclose the agricultural income in the income tax return (ITR) 1.
But if the agricultural income exceeds Rs. 5,000, then form ITR 2 applies.