Agricultural income & its taxability

1. Agriculture means tilling of land, sowing of seeds and similar basic operations which require human skill & labour on land itself.

3. Agricultural produce includes

a)Grains, Fruits or Vegetables required for human sustenance (plantation & Groves included)

b)Grass or Pasture for consumption of beasts

c)Articles of Luxury – betel, coffee, tea, spices, tobacco

d)Commercial crops – cotton flax, jute hemp, indigo

Is your income agricultural income? 

When all the below conditions are fulfilled,

1.The building is on or in the immediate vicinity of the agricultural land

2.It is occupied by the cultivator or receiver of rent or revenue and

3.It is used as dwelling house or store house or outhouse

4.The land is assessed to Land revenue. If not,

a) not situated within municipality/municipal corporation etc. which has a population of not less than 10,000 or

b) not situated in any area within the distance, measured aerially

Agricultural income is an exempt income as per Section 10(1) of the Income Tax Act, 1961. However, the government indirectly collects taxes by aggregation method if the assessee has both agricultural & non agricultural income, explained as below.

• Where agricultural produce is used as raw material in manufacturing operations, the average market price of the produce shall be treated as the business expense. No other deduction shall be allowed as per Rule 

• In case of the below businesses, segregation of agricultural & non agricultural income is as below

Summary

Some examples for better understanding