What is Agricultural Income ? Section 2 (1A) of the Income tax Act,1961 Agricultural income means : Revenue generated through rent or lease of a land in India that is used for agricultural purposes ; Any income derived from commercial sale of produce gained from an agricultural land Any income from farm building. Key points to validly classify an income as “agricultural income” Income should be from an existent piece of land in India ; Income should be from a piece of land that is used for agricultural operations ; Income should stem from produce achieved after cultivation of the land. Cultivation of land is a must ; Income can be from a land that is not under the assessee’s ownership. i.e. ownership of Land is not essential.

1. Presented by
Prashant Arsul

2.  Tax on Agriculture : Constitutional Provisions
 Article 246 along with Clause 82 of the Union List in Seventh
Schedule empowers the Parliament to legislate all taxes on income
“other than Agricultural Income”.
 Article 246(3) along with entry 46 in List II (State List) of the
Seventh Schedule vests powers on the States to levy tax on
Agricultural Income.

3.  What is Agricultural Income ?
 Section 2 (1A) of the Income tax Act,1961
Agricultural income means :
 Revenue generated through rent or lease of a land in India that is used
for agricultural purposes ;
 Any income derived from commercial sale of produce gained from an
agricultural land
 Any income from farm building.
 Key points to validly classify an income as “agricultural income”
 Income should be from an existent piece of land in India ;
 Income should be from a piece of land that is used for agricultural
operations ;
 Income should stem from produce achieved after cultivation of the
land. Cultivation of land is a must ;
 Income can be from a land that is not under the assessee’s
ownership. i.e. ownership of Land is not essential.

4.  What is not an Agricultural Income ?
 Income from sale of grass, tress etc. grown spontaneously
 Income from sale of processed produce without carrying out any
agricultural operations.
 Income in cases where the produce is subjected to substantial
processing which changes the very nature of the product (for
instance, canning of fruits etc).
 Income from trees that have been cut and sold as timber
 Income from stone quarries
 Income from breeding of livestock
 Income from dairy farming
 Income from poultry farming
 Income from brick making
 Income from supplying water to agriculturalists
 Income derived from letting out of land
 Income arising out of transfer of Agricultural land

5.  Partially Agricultural Income & Partially Non Agricultural
Income (Rule 7 – IT Rules, 1962) :
 Income from growing and manufacturing of:
 Rubber
 Tea
 Coffee
 Is Agricultural Income Taxable?
 By default, agricultural income is exempted from taxation and not
included in Total Income for tax purposes.
 Exemption provision : Sec.10 (1) of the Income Tax Act, 1961.
 However, Agricultural Income is included in the Taxable
income for Rate purposes if :
 Net Agricultural Income exceeds Rs.5,000/-
 Total Income, excluding Net Agricultural Income, exceeds the
Basic exemption limit.

6.  Steps for Tax calculation :
 Step 1 : Add agricultural and non-agricultural income and calculate
tax on the same.
 Step2 : Add agricultural income to the maximum exemption limit
and calculate tax on the same.
 Step3 : Tax payable= Tax in Step1 – Tax in Step 2.

7.  Certain Judicial Precedents :
 Income derived from saplings or seedlings grown in a nursery is
deemed to be agricultural income.
 A direct nexus between the agricultural land and the receipt of
income by way of rent or revenue is essential
 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.
 Income from sale of Grass cultivated for grazing of cattle -
[Chandrakant Maruti Saste Vs DCIT (Pune ITAT)]

8.  Certain Judicial Precedents :
 Income earned by Purchase of Standing crop, is not an agricultural
income
 Income from Sale Gur/Jaggery – Controversy continues.....issue
pending before the Bombay High Court.
 Since sale of Jaggery/Gur is chargeable to tax, the market price of
sugarcane consumed in the manufacture of Jaggery is to be deducted
for arriving at the taxable income (Dattatray Vithoba Shelke Vs DCIT,
Circle-9, Pune (Pune ITAT)
 Permanent stoppage of agricultural operations in the light of real
estate development taking place in the particular area, converts the
land into non-agricultural land - G.V.David Rajan Vs ITO (Chennai
ITAT)

9.  Certain Judicial Precedents :
 Merely because a land is not cultivated since last 14 years that does
not mean that it has losses its character of agricultural land Lavleen
Singhal Vs DCIT (111 TTJ 326)
 Income on Transfer/Compulsory Acquisition of Agricultural Land by
MIDC –
o What is the Nature of Land on date of Acquisition ? Whether
Agricultural or Industrial ?
o What if land was not being cultivated for last few years ?
o Whether Capital Gains exemption available ? (Gajanan Sahebrao
Phadke Vs ITO (Pune ITAT) & Jaywant Anantrao Phadke Vs. ITO –
Pune ITAT)

10.  Few Prominent Progressive Farmers (earning more then Rs.1
crore from farming) :
 Sitting MP and Daughter of Former Union Agriculture Minister :
Earned Rs.61 crores from just 9 acres of land ;
 Former Himachal Chief Minister earned Rs. 1.55 crore from farming

11.  Former Dy. Chief Minister (from Nasik Region)– recently returned –
after about 26 months ;
 Former (Late) Chief Minister from Latur & Former (Late) Dy. Chief
Minister from Beed (Parali Viajnath) both credited with the innovation
of making liquor from food grains (Jwari, Bajari etc.)
 Many such Progressive farmers in Pune and Mumbai too......

12.  In a recent Revelation, the IT department stated that a little more than
Two crore Indians, or 1.7% of the population, paid Income tax.
 The fact that less than 2% of Indians pay income tax is seen as a sign
of widespread evasion. Even the Finance Minister in his Budget
Speech, 2017 stated that “India’s tax to GDP ratio is very low” and
claimed that India is a “tax non-compliant society and too many
people evade taxes”.

13.  The reality is, in India the Agriculture sector is hugely unequal, both in
terms of land holdings and incomes.
 As per the latest 70th National Sample Survey, the landholding pattern
of agricultural households reveals that -
 the vast majority – almost 70% – have marginal holdings of below
1 hectare ;
 a very small percentage – only 0.4% – hold significant lands of
over 10 hectares.

14.  According to the finance ministry, 2,746 entities and individuals
declared agricultural income of above Rs. 1 crore during 2015-16.
More than 90% of the agricultural land is cultivated by marginal
farmers who do not file any Income Tax Returns as their income is
exempt from tax.
 Hardly 2 % of income tax assessees declare agricultural income and
this miniscule percentage of so-called farmers have declared
agricultural income worth thousands of trillions
 The exemption for agricultural incomes is benefiting rich farmers and
agricultural companies, which was not the intended outcome.
 Thus a need is felt to amend the definition of ‘agricultural income’
under the tax laws, and impose an appropriate monetary threshold
after careful study
 So, as much as Rs.25,000 crores could be collected as agriculture
income tax just by bringing to tax the incomes of the top 4.1% of the
total agricultural households. The amount that would be brought to tax
as a result of plugging the tax loophole, would be in addition to this
direct revenue.

15. Thank You