Section 10(1)– Exemption to Agricultural Income

Section 10 of the Income Tax Act covers the incomes which do not form part of the total income of any person. In other words, the incomes listed under section 10 are exempted from payment of income tax. As per section 10 (1), any agricultural income earned by the person during any previous year is exempted from tax. Under the present article, we would understand the provisions of section 10 (1) of the Income Tax Act. The article covers the definition of the term ‘Agricultural Income’ and treatment of agricultural income’.

Meaning of the term ‘Agricultural Income’

Section 10(1) simply states that any agricultural income earned by the person is exempted from income tax. Now, in order to understand the full coverage of exemption provided to agricultural income under section 10(1) of the Income Tax Act, it is important to under the definition / coverage of the term ‘Agricultural Income’.

Section 2(1A) of the Income Tax Act defines the term ‘Agricultural Income’. As per the definition, the agricultural income means as under –

1. The revenue earned in the form of rent or lease generated from the land if –

a. The land is situated in India; and

b. The land is used for agricultural purpose.

2. The income derived from the land by agriculture operations (such operations include both basic and subsequent operations).

3. The income derived from the processing of the agricultural produce so as to render it fit for the market or sale of the agricultural produce.

4. The income derived from any building owned and occupied in and around the agricultural land.

Conditions to be satisfied in order to qualify as ‘Agricultural Income’ –

It is mandatory to satisfy the following conditions in order to qualify as ‘Agricultural Income’ –

Conditions No. 1 –

• The land is either measured to land revenue in India or the land is subject to a local rate measured and collected by the Government Officers.
• If the above condition is not satisfied, the land should not be situated at any of the below locations –
  • Where the population is more than INR 10,000 – The land should not be situated within the jurisdiction of the local municipality or cantonment board.
  • The land should not be situated within the following –

Condition No. 2 –

The building must be in or on the immediate area of the land. The said building must have been used either as a dwelling house or as a store house or as an out building, in connection with the land.

Treatment of Agricultural Income –

If the activity qualifies within the definition of Agricultural Income, then the same is exempted in terms of provisions of section 10(1) of the Income Tax Act.

However, it is interesting to note that the agricultural income is to be included while computing the total income tax liability if the following two conditions are satisfied –

Condition No. 1 – Agricultural Income exceeds INR 5,000; and

Condition No. 2 – The total income (excluding the Agricultural Income) is more than the basic exemption limit.

If the above conditions are satisfied, the income tax would be calculated in the following manner –

Other important points to ponder related to agricultural income

• The income derived from transferring agricultural land doesn’t qualify as agricultural income.
• The income derived from seedlings or saplings (grown in a nursery) is deemed to be an agricultural income.

Table – Articles on Section 10 Exemptions