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[Sections 2(1A) and 10(1) ]
Section 10(1) of the Income-tax Act, 1961 exempts agricultural income from income-tax.
However, net agricultural income is added to the total non-agricultural income computed as per Income-tax Act, for the purpose of determining the income-tax on non-agricultural income of an individual, HUF, AOP/BOI or an artificial juridical person, although the agricultural income will remain fully exempt.
Tax is calculated on non agricultural income if following two conditions are satisfied:
- Non-agricultural income of the assessee exceeds the maximum exemption limit which is 2,50,000 in the case of an individual (other than individual of the age of 60 years or above) and HUF,etc and
- Net Agricultural Income exceeds 5,000.
In the case of an individual who is resident in India and who is of the age of 60 years or more but less than 80 years at any time during the previous year, the maximum exemption limit shall be 3,00,000 instead of 2,50,000 and in case of an individual who is resident in India who is of the age of 80 years or more at any time during the previous year, the maximum exemption limit shall be 5,00,000 instead of 2,50,000.
As per section 2(1A), agricultural income means
- Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
- 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.
- 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.
(A) Income from growing and manufacturing of any product other than tea [Rule 7]
An assessee may have composite business income which is partially agricultural and partially non-agricultural, for example, where XYZ Ltd. grows potatoes and further processes its produce to sell them as wafers. In this case the company has composite income i.e. from agriculture and from business. The composite income has to be disintegrated and for computing business income the market value of any agricultural produce raised by the assessee or received by him as rent in kind and utilised as raw material in his business is deducted. No further deduction is permissible in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent in kind. For computing agricultural income the market value of agricultural produce will be total agricultural receipt on account of potatoes. From such agricultural receipts, expenses such as cultivation expenses etc. incurred in connection with such receipt will be deducted and balance will be agricultural income which will be exempt.
(B) Income from growing and manufacturing of rubber [Rule 7A]
- Income derived from the sale of centrifuged latex or cenexor latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, re-milled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and 35% of such income shall be deemed to be income liable to tax.
- In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of section 10(31) , is not includible in the total income.
(C) Income from growing and manufacturing of coffee [Rule 7B]
- Income derived from the sale of coffee grown and cured by the seller in India, shall be computed as if it were income derived from business, and 25% of such income shall be deemed to be income liable to tax.
- Income derived from the sale of coffee grown, cured, roasted and groundedby the seller in India, with or without mixing chicory or other flavouring ingredients shall be computed as if it were income derived from business, and 40% of such income shall be deemed to be income liable to tax.
(D) Income from growing and manufacturing of tea [Rule 8]
Where the assessee has a business of growing tea leaves and then processing it or manufacturing the same,
- Compute the income of growing as well as manufacturing tea under the head ‘profits and gains of business or profession’ after claiming the deductions available under that head.
- 60% of the income computed above will be treated as net agricultural income and 40% of such income is treated as business income.