Income from Agricultural Land
Introduction
Income derived from agricultural land can be categorized as income from agricultural operations or capital gains from the sale of agricultural land. While income from agricultural operations is exempt under the Income-tax Act, it may influence tax rates for non-agricultural income through partial integration. Capital gains from the sale of rural agricultural land are tax-exempt, whereas gains from urban agricultural land are taxable.
Meaning of Agricultural Land
Agricultural land is characterized by its use for agricultural purposes.
Meaning of Agricultural Income
As per the Income-tax Act, agricultural income includes revenue or rent from agricultural land, income from agriculture or related activities, and revenue from farm buildings or nurseries growing saplings/seedlings.
Tax Implications
- Exemption under Section 10(1) : Agricultural income is exempt from tax, but it may be included for rate determination of non-agricultural income under partial integration provisions.
- Capital Gains: Gains from transferring rural agricultural land are exempt as it is not a capital asset under the Act. Gains from urban agricultural land are taxable.
Partly Agricultural and Partly Business Income
When an entity derives income from both agricultural and business activities (e.g., agro-industries), a presumptive computation method allocates portions of income to agricultural and non-agricultural categories as per the following rules:
- Growing & Manufacturing of Tea ( Rule 8 ) : 60% agricultural, 40% non-agricultural.
- Growing & Manufacturing of Rubber ( Rule 7A ) : 65% agricultural, 35% non-agricultural.
- Sale of coffee grown and cured by the seller in India ( Rule 7B ) : 75% agricultural, 25% non-agricultural.
- Sale of coffee grown, cured, roasted and grounded by the seller in India ( Rule 7B ) : 60% agricultural, 40% non-agricultural.