AGRICULTURAL INCOME

(MAY’23 & NOV’23)

HAPPY LEARNING
INCOME TAX

CA. P.Ramasamy
 Sec.10(1) : Agricultural Income - Exempted

As per section 10(1), agricultural income earned by the taxpayer in India is exempt from
tax. Agricultural income is defined under section 2(1A) of the Income-tax Act.

CA. P.Ramasamy
 Sec.2(1A) : Agricultural Income
Sec.2(1A) - Agricultural Income

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 or by the process employed to
render the produce fit for the market or by sale of such produce by a cultivator or
receiver of rent in kind;
c) Any income derived from any building provided the following conditions are satisfied:-
(i) The building is on or in the immediate vicinity of the agricultural land;
(ii) It is occupied by the cultivator or receiver of rent or revenue;
(iii) It is used as a dwelling house or storehouse or out-house; and
(iv) The land is assessed to land revenue in India or it is not situated within the
Specified Area.
CA. P.Ramasamy
 Sec.2(1A) : Agricultural Income
“Specified Area” means –

a) Any area which is comprised within the jurisdiction of a municipality or a cantonment

board and which has a population of not less than 10,000; or

b) Any area within the distance, measured aerially, -

• Not being more than 2 Kms from the local limits of any municipality or cantonment
board and which has population of more than 10,000 but not exceeding 1,00,000 or

• Not being more than 6 Kms 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 8 Kms from the local limits of any municipality or cantonment
board and which has a population of more than 10,00,000

CA. P.Ramasamy
 Sec.2(1A) : Agricultural Income

1. Any income derived from saplings or seedlings grown in a nursery shall be deemed
to be agricultural income. However, where an assessee is a trader of such saplings or
seedlings, the same shall be charged to tax under the head “Profits & Gains of
Business or Profession”.

2. Income derived from any farm building or land appurtenant thereto arising from the
use of such building or land for any purpose other than agriculture shall note be
regarded as agricultural income.

3. Any gain derived on transfer of agricultural land will not be regarded as agricultural
income

CA. P.Ramasamy
 Aggregation of Agricultural Income for Rate Purposes

In the case of an Individual who has Agricultural & Non-Agricultural Income

PARTICULARS Reference Amt (Rs)
Agricultural Income (a) xxx
Non-Agricultural Income (Total Income) (b) xxx
Aggregation of (a) and (b) (c) xxx
Tax Payable on (c) (d) xxx
Aggregation of (a) and Basic Exemption Limit (e) xxx
Tax Payable on (e) (f) xxx
Net Tax Payable (d) – (f) (g) xxx

CA. P.Ramasamy
 Income which is partially agricultural and partially from business

1. In the case of income, which is partially from agriculture and partially from business,
in determining the business income chargeable to income tax, the market value of
any agricultural produce cultivated or received as ‘rent in kind’ and which has been
used as a raw material in such business or the sale receipts of which has been
included in the accounts of the business shall be deducted.

2. If the agricultural produce which is used a a raw material is ordinarily sold in the
market, then the average price at which it has been so sold during the relevant
previous year shall be deemed to the market value. The assessee is not entitled to
claim any other expenditure incurred by him as a cultivator or receiver of rent-in-
kind. For example, if sugarcane is cultivated and used as raw material in the
manufacture of sugar or jaggery by the assessee, this principle applies.

CA. P.Ramasamy
 Income which is partially agricultural and partially from business

3. If the agricultural produce which is used as a raw material is not ordinarily sold in
the market, then the aggregate of the cultivation expenses, the land revenue or rent
paid for the area in which it was grown and reasonable amount of profit shall be
deemed to be the market value of such agricultural produce – Rule 7.

4. Latex Rubber – Coffee – Tea: In the case of an assessee who is growing and
manufacturing latex rubber, coffee and tea in India, the income derived therefrom
shall be computed as if it were income derived from business. In such computation,
the provisions contained in Sec.30 to 43D to the extent applicable to the
computation of business income shall be applied. Out of such income, segregation
shall be made on the following basis to determine the agricultural income which
shall be exempt and the non-agricultural income which shall be liable to tax:

CA. P.Ramasamy
 Rubber - Coffee - Tea

Income Tax Agricultural Business

Produce
Rule Income Income
Rubber – centrifuged latex or cenex or
7A latex based crepes or brown crepes or 65% 35%
technically specified block rubber
7B(1) Coffee grown and cured 75% 25%
Coffee grown, cured, roasted and
7B(1A) 60% 40%
grounded
8 Tea grown and manufactured 60% 40%

CA. P.Ramasamy
 Problem No. 1

Mr.Georgy has estates in Rubber, Tea and Coffee in Kerala. He derives income from them.
He has also a nursery wherein he grows plants and sells. For the previous year ending
31.03.2023, he furnishes the following particulars of his sources of income from estates
and sale of plants. You are requested to compute taxable income for the AY 2023-24.

S.No. Particulars Amt (Rs)

(i) Manufacture of Rubber 6,00,000
(ii) Manufacture of Coffee grown and cured 3,50,000
(iii) Manufacture and growing of Tea 8,00,000
(iv) Sales of Plants grown in nursery 2,00,000

CA. P.Ramasamy
 Solution No.1

Computation of Taxable Income of Mr.Georgy for AY 2023-24 Rs in Lacs

S.No. Income Rule Agricultural Business Total
No. income Income
(i) Manufacture of Rubber (65:35) 7A 3.90 2.10 6.00
(ii) Manufacture of Coffee grown 7B 2.63 0.87 3.50
& cured (75:25)
(iii) Manufacture of Tea (60:40) 8 4.80 3.20 8.00
(iv) Sale of Plants grown in Nursery 2.00 NIL 2.00
Total 13.33 6.17 19.50
Note: Income derived from the Estate by way of sale of Rubber, Coffee and Tea are
subject to Rules prescribed. Income derived from Nursery is considered as
agricultural income as per explanation to Sec.2(1A)

CA. P.Ramasamy
 Problem Nos. 2 & 3

Problem No.2
The total non-agricultural income of Mr.Kailash, aged 40 is Rs.15,00,000. The agricultural
income earned is Rs.75,000. Determine the tax payable by Mr.Kailash for AY 2023-24.

Problem No.3
Mr.Asim, a 60 years old individual, is engaged in the business of roasting and grounding
coffee, derives income of Rs.10 Lakhs during the FY 2022-23. Compute the tax payable by
him assuming he has not earned any other income during the FY 2022-23.

CA. P.Ramasamy
 Solution No.2

Computation of Tax Payable by Mr.Kailash (age 40 years)

Agricultural Income (a) 75,000
Non-Agricultural Income (b) 15,00,000
Aggregation of (a) & (b) (c) 15,75,000
Tax Payable on (c) (d) 2,85,000
Aggregation of (a) & Basic Exemption Limit (e) 3,25,000
Tax Payable on (e) (f) 3,750
Net Tax Payable (d)-(f) (g) 2,81,250
Add education cess @ 4% (h) 11,250
Net Tax Liability (i) 2,92,500

CA. P.Ramasamy
 Solution No.3

Computation of Tax Payable by Mr.Asim (Senior Citizen)

Total Income 10,00,000
Tax payable on the above income 1,10,000
(Senior Citizen Basic Exemption Limit – Rs.3,00,000)
Add education cess @ 4% on the above 4,400
Total Tax Liability 1,14,400
Note: The assessee, Mr.Asim, is not engaged in the business of growing &
manufacturing coffee and therefore Rule 7B does not apply and the entire income is
chargeable as Business Income.

CA. P.Ramasamy
 Problem No.4

X Ltd., grows sugarcane to manufacture sugar. The data for the FY 2022-23 is as
follows:
Cost of cultivation of sugarcane 6,00,000
Market value of sugarcane when transferred to factory 10,00,000
Other manufacturing cost 6,00,000
Sales of Sugar 25,00,000
Salary of managing director who looks after all the operations 3,00,000
of the company
Determine the agricultural income of the company.

CA. P.Ramasamy
 Solution No. 4

Computation of Business Income (from Manufacturing Activities)

Sales Revenue 25,00,000
Less Market Value of Sugarcane 10,00,000
Less Salary of Managing Director 3,00,000
Less Other Manufacturing Cost 6,00,000 19,00,000
Business Income 6,00,000

Computation of Agricultural Income

Market Value of Sugarcane 10,00,000
Less Cost of Cultivation 6,00,000
Agricultural Income 4,00,000

CA. P.Ramasamy
 Problem No. 5

Coimbatore Cotton Mills is engaged in the business of growing cotton and

manufacturing thread. For the PY 2022-23, the Company manufactured 500 spools of
thread and sold them for a value of Rs.60,00,000. They used 2000 bales of cotton
grown by them. Determine the total income in the following situations for AY 2023-24:

(a) The market price per bale of cotton is Rs.1,500. Cultivation expenses incurred for
producing 2,000 bales of cotton were Rs.38,00,000.

(b) The market price per bale of cotton is Rs.1,500. Cultivation expenses incurred for
producing 2,000 bales of cotton were Rs.20,00,000.

CA. P.Ramasamy
 Solution No. 5

(a) Computation of Business Income Of Coimbatore Cotton Mills

Sale Proceeds 60,00,000
Less Market Value of Cotton utilized – 2,000 bales @
Rs.1,500 (actual cost – Rs.38 Lacs shall not be considered) 30,00,000
Taxable Business Income 30,00,000

(b) Computation of Business Income Of Coimbatore Cotton Mills

Sale Proceeds 60,00,000
Less Market Value of Cotton utilized – 2,000 bales @
Rs.1,500 (actual cost – Rs.20 Lacs shall not be considered) 30,00,000
Taxable Business Income 30,00,000

CA. P.Ramasamy
 Problem No. 6 & 7
Problem No.6
Mr.Rajini grows paddy and uses the same for the purpose of manufacturing of rice in his
own rice mill. The cost of cultivation of 40% paddy produce is Rs.7,00,000 which is sold
for Rs.15,00,000; and the cost of cultivation of balance 60% of paddy is Rs.12,00,000 and
the market value of such paddy is Rs.24,00,000. To manufacture the rice, he incurred
Rs.2,00,000 in the manufacturing process on the balance (60%) paddy. The rice was sold
for Rs.30,00,000. Compute the Business Income and Agriculture Income of Mr.Rajini.

Problem No.7
Mr.Kamal, a resident aged 25 years, manufactures tea leaves from tea plants grown by
him in India. These are then sold in the Indian market for Rs.40 Lakhs. The cost of
growing tea plants was Rs.15 Lakhs and the cost of manufacturing tea leaves was Rs.10
Lakhs. Compute the Tax Liability for the AY 2023-24.

CA. P.Ramasamy
 Solution No. 6
Computation of Business Income of Mr.Rajini
Sale Value of Rice 30,00,000
Less Market Value of Paddy (-) 24,00,000
6,00,000
Less Further Manufacturing Cost (-) 2,00,000
Business Income 4,00,000

Computation of Agricultural Income of Mr.Rajini

Sale Value of 40% of Produce 15,00,000
Less Market Value of 60% of Paddy (+) 24,00,000
Total Agricultural income 39,00,000
Less Cost of Cultivation (40%) (-) 7,00,000
Less Cost of Cultivation (60%) (-) 12,00,000
Agricultural Income 20,00,000

CA. P.Ramasamy
 Solution No. 7
Computation of Total Income of Mr.Kamal
Sale of Tea Plants in Market 40,00,000
Less Cost of growing tea plants (-) 15,00,000
Less Cost of manufacturing tea leaves (-) 10,00,000
Profit on sale of tea leaves 15,00,000
Less: 60% of income is agricultural 9,00,000
Taxable Income of Mr.Kamal 6,00,000

Computation of Tax Liability of Mr.Kamal

Agricultural + Non-Agricultural Income 40,00,000
Income Tax on above (A) 2,62,500
Basic Exemption + Agricultural income 11,50,000
Income Tax on above (B) 1,57,500
Tax Payable (A)-(B) 1,05,000
Add Health & Edn. Cess @ 4% 4,200
Total Tax Payable 1,09,200
CA. P.Ramasamy
THANK YOU

CA. P.Ramasamy