What Does the Term Agricultural Land Income Mean?

Agriculture income is exempt under the Indian Income Tax (IT) 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.

What does the term Agricultural Income mean..?

As per IT Act income earned from any of the under given three sources meant

Agricultural Income;

(a) Any rent received from land which is used for agricultural purpose..!

Assessees do not have to pay tax on rent or / revenue from agricultural land. Such land should, of course, be assessed to land revenue in India or / be subject to a local rate.

Further, there must be a direct link between the agricultural land &  the receipt of income by way of rent or other revenue (for instance, a landlord could receive revenue from a tenant).

(b) Any income derived from such land by agricultural operations..!

Including processing of agricultural produce, raised or /  received as rent in kind so as to render it fit for the market, or sale of such produce.

(c) Income attributable to a farm house..!

 Subject to the condition that building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house etc.

Income from such farm houses is considered agricultural income. The definition of `farm

houses’ covers buildings owned and occupied by both cultivators of agricultural land &

assesses who receive rent or revenue from agricultural land.

The sole purpose of such farmhouses should be for use as dwellings for the cultivators or / use as store houses.

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 would, thus, be exempt from tax.

d)Income earned from carrying nursery operations is also considered as agricultural

income & hence exempt from income tax.

In order to consider an income as agricultural income certain points have to be kept in mind:

(a) There must me a land..!.

(b) The land is being used for agricultural operations..!

 Agricultural operation means that efforts have been induced for the crop to sprout out of the land. The ambit of agricultural income also covers income from agricultural operations, which includes processing of agricultural produce to make it fit for sale. Like the people who receive passive agricultural income in the form of rent or revenue, the people who actually carry out agricultural operations are also eligible for tax-free agricultural income.

(c) Land cultivation is must..!

 Some measure of cultivation is necessary for land to have been used for agricultural purposes.

The ambit of agriculture covers all land produce such as 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 can not be construed as agricultural operations.

(d) If any rent is being received from the land then in order to assess that rental income as

agricultural income there must be agricultural activities on the land.

(e) In order to assess income of farm house as agricultural income the farm house building

must be situated on the land itself only and is used as a store house / or dwelling house.

(f) Ownership is not essential...!

In the case of rent or / revenue, it is essential that the assesses have an interest in the land (as an owner or/  mortgagee) to be eligible for tax-free income.

However, in the case of agricultural operations it is not necessary that the person conducting the operations be the owner of the land.

He could be just a tenant or a sub-tenant. In other words, all tillers of land are agriculturists and enjoy exemption from tax.

In some cases, further processes may be necessary to make a marketable commodity out of agricultural produce. The sales proceeds in such cases are considered agricultural income even though the producer’s final objective is to sell his products.

Src: www.8am.in

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