Agriculture income is exempt under the Indian Income Tax Act. This means that income earned from agricultural operations is not taxed.
The reason for exemption of agriculture income from Central Taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Legislature.
However while computing tax on non-agricultural income agricultural income is also taken into consideration for rate purpose.
Agricultural income earned by a taxpayer in India is exempt under Section 10(1) of the Income Tax Act, 1961. For meaning of Agricultural Income refer section 2(IA) of the Income-tax Act.
Under the Income-tax Law is income from animal husbandry considered as an agricultural income?
Do I need to maintain any records or proof of earnings?
For every source of income you have to maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, you should maintain reasonable records with which you can support the claim of income.
As an agriculturist, am I required to maintain any proof of earnings and expenditures incurred?
Even if you have only agricultural income, you are advised to maintain some proof of your agricultural earnings/expenses.
Agricultural income is defined under section 2(1A) of the Income-tax Act.
As per section 2(1A), agricultural income generally means (a) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes. (b) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce. (c) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A). Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Meaning of Agricultural Income:
Section 2 (1A) of the Income Tax Act, 1961 defines “agricultural income” as an income under the following three sources:
(i) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes: The assessee will not be liable to pay tax on the rent or revenue arising from agricultural land subject to the conditions:
(a) The land should either be assessed to land revenue in India or be subject to a local rate assessed and collected by officers of the Government.
(b) In instances where such a land revenue is not assessed or not subject to local rate, the land should not be situated within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board, and which has a population of more than ten thousand (according to the last preceding census which has been published before the first day of the previous year in which the sale of land takes place); or it should not be situated:
• more than 2kms. from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
• not being more than 6kms. from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
• not being more than 8kms. from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
(c) The revenue must not include any income arising out of transfer of such land.
Further, a direct nexus between the agricultural land and the receipt of income by way of rent or revenue is essential. (For instance, a landlord could receive revenue from a tenant.)
(ii) Any income derived from such land by agricultural operations including processing of agricultural produce, raised or received as rent in kind or any process ordinarily employed by cultivator or receiver of rent-in-kind so as to render it fit for the market, or sale of such produce.
(iii) Any income derived from any building owned and occupied by the assessee, receiving rent or revenue from the land, by carrying out agricultural operations: The building must be on or in the immediate vicinity of the land. It must be used by the assesee as a dwelling house or store-house or an out-building, in connection with the land.
Hence, we can consider income attributable to a farmhouse as an agricultural income, subject to the above conditions. Normally, the annual value of a building is taxable as ‘income from house property’. However, in the case of a farm house, the annual value would be deemed agricultural income and thus, be exempt from tax.
In addition to the above, income derived from saplings or seedlings grown in nursery is also considered as agricultural income.
In order to consider an income as agricultural income, certain points have to be kept in mind:
(i) Existence of a land.
(ii) Usage of land for agricultural operations: Agricultural operations means efforts induced for the crop to sprout out of the land. The ambit of agricultural income covers income from agricultural operations, which includes processes undertaken to make the produce fit for sale in the market. Both, rent or revenue from the agricultural land and income earned by the cultivator or receiver by way of sale of produce are exempt from tax only if agricultural operations are performed on the land.
(iii) Cultivation of Land is a must: Some measure of cultivation is necessary for land to have been used for agricultural purposes. The ambit of agriculture covers all land produce like grain, fruits, tea, coffee, spices, commercial crops, plantations, groves, and grasslands. However, the breeding of livestock, aqua culture, dairy farming, and poultry farming on agricultural land cannot be construed as agricultural operations.
(iv) Ownership of Land is not essential: In the case of rent or revenue, it is essential that the assessee has an interest in the land (as an owner or a mortgagee) to be eligible for tax-free income. However, in the case of agricultural operations, it is not necessary that the cultivator be the owner of the land. He could be a tenant or a sub-tenant. In other words, all tillers of land are agriculturists and enjoy exemption from tax. In certain cases, further processes may be necessary to make a commodity marketable out of agricultural produce. The sales proceeds in such cases are considered agricultural income because the producer’s final objective is to sell his products.