Agriculture income details

What is considered as Agricultural Income?

Section 2 (1A) of the Income tax Act details out the conditions wherein sources can be considered to be generating agricultural income. 

1. Revenue generated through rent or lease of a land in India that is used for agricultural purposes
2. Revenue generated through the commercial sale of produce gained from an agricultural land

3. Revenue generated through the renting or leasing of buildings in and around the agricultural land subject to the following conditions

   1. The cultivator or farmer should have occupied the building, either through rent or revenue
   2. The building is used as a residential place, storeroom or outhouse
   3. The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate.

By default, agricultural income is exempted from taxation under Section 10 (1) of the Income Tax Act of India.

But the total tax liability for a person would include the agriculture income added to the non-agricultural portion.

The tax calculation will involve the following steps:

1. Including the Agricultural Income – Considering B is the base income of the individual and A is the agricultural income, tax first needs to be computed on the amount of B+A. Let’s call this tax as T(B+A)
2. Adding the basic tax slab benefit –  Let the basic exemption limit be S. That needs to be added to the agricultural income and income tax is be calculated on the amount. Let’s call this tax as T(S+A)
3. Income Tax liability – Thus IT = T(B+A) – T(S+A).