Frequently Ask Questions – Agricultural income
Question 1. Does interest on arrears of rent qualify as agricultural income and will this be exempt from tax?
Answer:- If, a tenant pay arrears rent or revenue payments (either in cash or kind) and the landlord charges interest on such arrears, the income of land lord would be deemed income by way of interest and would, hence, be chargeable to tax.
Question 2. If agricultural produce is processed to make it marketable at a place other than the agriculture land, then the amount charged for such processing will be an agricultural income or not?
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Answer:- For example trashing of wheat, mustard, etc is part of agricultural operations only and the amount recovered will be treated as agricultural income only no matter processing takes place on the land itself or some other place.But in certain cases like in the case of tea, coffee, sugarcane where a major processing is being done, then some part of the processed produce (tea, coffee & sugar) is taxed as non-agricultural income and rest is exempt as agricultural Income
Question 3. What if agriculture operation is carried on urban land?
Answer :- Agricultural operations are carried out on land, either urban or rural, the income from sale of such agricultural produce shall be treated as agricultural income and exempt from tax.
4. If any industrial organization grows crops and sells half of the produce as raw material in the market and remaining (further processed) as finished goods, what will be the tax treatment?
Agricultural income is exempt from income tax. It does not matter whether the agricultural operations are done by an industrial organization or an individual. If any industrial organization grows crops and sells half of the produce as raw material in market and remaining (further processed) as finished goods, the income which is earned on the first half of produce (sold in market as raw material) is totally exempt from tax.
In case of the remaining produce which is further processed, scheme of presumptive taxation is applicable. Rule 7,7A,7B and 8 of Income tax Rules deals with such type of income. Rule 7 says that in cases where income is partly agricultural and partly from business, the market value of the agricultural product used as a raw material, shall be deducted from the sale receipts and will be treated as agriculture income. The remaining will be considered as non agricultural income.
5. In my agriculture farm, I have 5 cows in Pune (Maharashtra). The product being milk is the main produce, and not a byproduct. Is this income an agriculture income or a taxable income? (This milk is sold to dairy product plant in nearest Co-op Society).
Answer:- Dairy farming is not an agricultural income.For agricultural income basic conditions should be fulfill.
6. Why rent on land is treated as agricultural income?
Answer:- Rent received from agricultural land used for agricultural purpose is treated as agricultural income. This is prescribed by the law.
7. I have a business income of Rs 2,50,000 and agricultural income of Rs 3,50,000. These figures relate to the Assessment year 2015-16. How will my tax liability be computed?
Agricultural income is exempt under Section 10(1) of the Act so long as the income is derived from agricultural land situated in India. This income is, however, included merely for rate purposes and rebate is allowed on the same in accordance with the Finance Act. The inclusion of Agricultural income for rate purpose is only required if total income of an individual exceeds Rs. 2,50,000/- (assessee being aged less than 60 years of age).
Particulars Amount in Rs.
Business Income 2,50,000/-
Agricultural Income 3,50,000/-
Income Including Agricultural Income 6,00,000
Tax on 6,00,000/- 46350/-
Less: Rebate on Agricultural Income
(Tax on Rs. 3,50,000 + Rs. 2,50,000 being basic exemption) 60,000/-
Net Tax Payable NIL
8. Can Interest on Crop Loan be claimed as an exemption?
Answer:-The interest earned on Crop Loan cannot be claimed as an exemption by the provider of loan since the condition of ownership of land being not essential holds true only if the assessee has interest in the land. The provider of the loan may not have an interest in the land because it may be his ordinary business to provide Crop Loan. However, the farmer to whom the crop loan is provided can claim the same as a deduction while computing his tax liability.
9. If an assessee sells the fruits of the trees planted by him around his home, will the income so earned be agricultural income?
Answer:- The trees planted by him should be on a land which can be classified as an agricultural land by fulfilling the conditions mentioned earlier in this article. If the land is agricultural, then the income earned by selling of fruits can be treated as agricultural income.
10. I have taken certain agricultural land on lease and crops are being grown on the said land for many years. Now the said land alongwith growing crops has been acquired by the Govt. The Govt. paid separate compensation for the land and the crop. Whether the compensation received in lieu of crop is agriculture income or not?
Answer:- Further note that assessee has not further invested the amount in agriculture land received as compensation against crop.The compensation paid for the crops by the Govt. can be considered to be as good as income earned by purchase of standing crop, which is not an agricultural income. Hence the compensation against crop is taxable in the hands of receiver of the compensation.
11. Whether income earned from export of agricultural produce is exempt from income tax?
Answer:- The conditions for considering the income as agricultural in nature have to be satisfied if the agricultural produce has to be exempt from income tax. dealing as
trading of agricultural produce are generally not entitled to exemption due to lack of satisfaction of the conditions.
12. I have an income of Rs.1,35,000 from my business and an agricultural income of Rs. 8,45,000. Do I need to file the return of income?
Answer:-The process of computation of tax liability is followed only if the assessee’s non-agricultural income is in excess of the basic exemption slab. In this case,
the income from business of the assessee is lower than the basic exemption limit. However, the returns have to be filed with regards to the disclosure of agricultural
income.
13. An assessee wants to buy farms which bear coconut trees, on a lease for a period of one year. State whether sale of coconuts is said to be an agricultural income
or not?
Answer:-If the land is agricultural, then the income earned by selling of coconuts can be treated as agricultural income.
14. I had sold an agricultural land in a rural area, which is outside jurisdiction of the Municipal Authority. Whether the sales proceeds are exempt or taxable?
Answer:-The scope of agricultural income excludes the revenue which is earned by transfer of agricultural land not falling under the definition of Capital assets u/s.
2(14). By definition of a capital asset under Section 2(14), an agricultural land in an area falling out of jurisdiction of the Municipal Authority (which has a
population of more than 10,000), is not a capital asset. Section 10(37) allows income from transfer of such a land to be classified as a capital gain via clause (i).
u/s 54B if a capital gain arising out of this transaction will be exempt provided the conditions (mentioned earlier in this article) are satisfied.
15. Is receipt from sale of rubber trees an agricultural income?
Answer:- Receipt of sale of rubber trees is an agricultural income if the conditions for land being agricultural in nature are satisfied.
