As per Section 10(1) of the Income Tax Act, 1961, agriculture incomes are those incomes which are not included while calculating the total income of the assesses. As per Section 2(1A) of the said act, agriculture income not only covers the one who re engaged in cultivating but also the ones who hold the land in reality. The main reason behind agriculture income being an exemption is that, under the constitution the government has no power to levy tax on agriculture incomes.
WAYS BY WHICH AGRICULTURE INCOME MAY ARISE
Agriculture income may be in cash or any kind. It arises in the following situation:
1. When the land is given on rent to be used for agriculture purpose, then the rent received will come under agriculture income.
2. It may be the money received from agriculture
3. It may be the money received because of working as a cultivator
4. It may be received from the sale of agriculture produce in the market
5. The income received when any farm building is used for agriculture purposes.
To derive agriculture income out of the land, the land must be situated in India. However, those activities which are in a distant relation to land cannot be called agriculture, for example, dairy farming, poultry farming etc. But the income derived from nursery comes under agriculture income, even if the saplings are not grown on the land.
In the case of Raja Benoy Kumar Sahay v. CIT (1957), it was laid out that agriculture operations, include the application of human skill/labour upon the land before germination.
BUSINESS INCOME AND AGRICULTURE INCOME
Whether a particular income will fall under Agriculture Income or Business Income, is put forth under Rules 7, 7A, 7B & 8 of the Income Tax Rules, 1962.
This rule is applicable in such a way that when the income is partially agriculture income and partially Business Income, then in such cases, the market value of the product which has also been utilised as the raw material, shall be deducted while calculation of business Income.
Under this rule, when income is derived from sale of rubber and final product of rubber, 35% is chargeable under business income and rest 65% under Agriculture Income.
Under this rule, in those cases where the coffee is just grown and cured by the sellers in India, then 25% profits will be taxable as Business Income and rest 75% will be exempted as agriculture Income.
But in those cases where the coffee is not only grown and cured by the seller but also roasted and grounded b them, then in such cases 40% profits will be taxable as Business Income and rest 60% will be exempted as agriculture Income.
Under this rule, those who grow and manufacture tea, the income received by them will be 40% under Business Income and 60% will be exempt as agriculture Income
WHAT COMES UNDER AGRICULTURE INCOME?
WHAT DOES NOT COMES UNDER AGRICULTURE INCOME
Incomes which are generated from: