Agricultural Income under IT Act

What is Agricultural Income in income tax?

According to the provisions of the Income Tax Act, agricultural income is considered to be the income that comes from agricultural land and buildings. It is also the income that comes from the agricultural activities. The agricultural income can be classified broadly into three categories:

1. The income that comes from the rent and revenue from the agricultural land located in India.
2. Income from the building is required for the agricultural operations.
3. Income that is generated from the primary agricultural activities done on the agricultural land. It also includes the sale of the produce from the agricultural land.

Agricultural income is shown under the ITR-1 form of the agricultural income. But you need to keep in mind that ITR-1 applies only to the agricultural income up to Rs 5,000. In case the limit crosses, then the ITR-2 is used to fill the taxes. 

Sale of Agricultural Produce and Agricultural Activities

1. Basic Operations: It includes activities like cultivation of the land, sowing of the seeds, tilling of the land, planting, and all such operations that require human efforts and skills applied directly to the land.
2. Subsequent Operations: These operations are carried out from the growth of the produce, like weeding, digging soil around the grown crops, etc. It also includes their preservation and the operations that make the product appropriate for selling in the market, like cutting, harvesting, tending, etc.
3. Processing the product for the market: Such types of processes include the mechanical operations that are ordinarily done to make the product a good fit for the market. These processes maintain the original character of the produce. 
4. Sale of agricultural produce: The income that comes from the market sale of the produce is partly agricultural, and the other half is non-agricultural income. The agricultural income is exempt from taxes, while the other income is taxable. 

Income from Farm Building

There are certain conditions that are used to classify the income derived from the farm building as agricultural income. These conditions are as follows:

1. The building should be on or around the agricultural land. 
2. The farm building should be used in the agricultural operations, like the rent receiver or the cultivator of land, or the person connected to the land must use this building as his house or the storehouse for the produce or farming equipment. 
3. One of the following conditions should be satisfied: 

• The land should be assessed by the land revenue or a local rate collected and assessed by the government, or
• If the above condition is not satisfied, then the land should be considered a rural agricultural land for income tax.

Agricultural and Non-Agricultural Income

Agricultural income in taxation law is dependent on the type of produce, and they are also taxed on the same basis. When the taxpayer earns both the agricultural and non-agricultural income, then the partial integration rule is applied. Here is a representation of the operations and the percentage of them as agricultural and non-agricultural income:

Operations	Agricultural Income	Non-Agricultural Income
Tea growing and manufacturing	60%	40%
Rubber Manufacturing	65%	35%
Coffee growing and curing	75%	25%
Coffee is grown, cured, roasted, and ground, with or without mixing of other ingredients like chicory	60%	40%

Examples of Agricultural Income

Here are the examples of the agricultural income:

• Income that comes from the replantation of trees.
• Income that comes from the sale of the seeds.
• Income comes from growing the creepers nd flowers.
• Income comes from the rent that is received on the agricultural land.
• Income comes from the growing of bamboo.
• Income comes from the interest on the capital received by a partner in a firm that is connected to agricultural operations.
• Income comes from the profits that are received by a partner from a firm that is involved in agricultural activities or production.