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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).

Agricultural income with Indian Currency Note

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 –
Aerially distance from the local limits of any municipality or cantonment board. Corresponding population
Not more than 2 KMS More than 10,000 but not exceeding 1,00,000
Not more than 6 KMS More than 1,00,000 but not exceeding 10,00,000
Not more than 8 KMS More than 10,00,000

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 –

Particulars Amount
1.    Calculate income tax on total income (including agricultural income) as per prevailing income tax rates XXX
2.    Calculate income tax on basic exemption limit + agricultural income as per prevailing income tax rates XXX
3.    Tax liability (1-2) XXX

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

Sr. No. Particulars
1 Section 10(1)– Exemption to Agricultural Income
2 Section 10(2) Exemption to amount received by co-parcener from HUF
3 Section 10(2A) Exemption towards share of income from firm/LLP
4 Exemptions towards interest to non-residents | Section 10(4) & 10(4B)
5 Exemption on Tax paid by Govt or Indian concern on certain income of a foreign company
6 Section 10(7) Perquisites/allowances exemption to Govt employees serving outside India
7 Exemption- Section 10(8A) & section 10(8B) of Income Tax Act
8 Exemption towards commuted value of pension Section 10(10A)
9 Exemption towards retrenchment compensation received by workman Section 10(10B)
10 Section 10(10BC) Exemption towards compensation received on account of any disaster
11 Section 10(10C) Exemption of amount received on voluntary retirement
12 Exemption towards tax paid by employer on non-monetary perquisites: Section 10(10CC)
13 Section 10(10D) Exemption towards amount received under a Life Insurance Policy
14 Exemption for amount received from Statutory & Recognized PF
15 Exemption for payment from approved superannuation fund Section 10(13)
16 Income Tax Exemption on prescribed allowances/ benefits | Section 10(14)
17 Section 10(15) Exemption- Interest on Bonds, Debentures, Securities
18 Scholarship exemption | Section 10(16) | Income Tax Act 1961
19 Exemption towards income for administration of Charitable or Religious Institution
20 Section 10(32) Exemption | Income of minor clubbed with parent
21 Exemption for dividend income received from Indian Company | Section 10(34)
22 Section 10(34A) Exemption towards income received by a shareholder on buy back of shares
23 Section 10(35) Exemption towards income received from units
24 Section 10(37) Exemption towards Capital Gain arising on Compulsory Acquisition of Urban Agricultural Land

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April 2024