Section 10(1) – Agricultural Income

Section 10(1) of the Income Tax Act, 1961, provides a full exemption for agricultural income, meaning it is not taxable under the central income tax laws. However, some state governments may levy taxes on agricultural income under their own laws.

What is Agricultural Income?

Agricultural income is defined under Section 2(1A) and includes:

1. Rent or Revenue from Agricultural Land
   • Income from leasing agricultural land in India.
   • Example: A farmer earns ₹50,000 per year by renting his land to another farmer.
2. Income from Agricultural Operations
   • Earnings from cultivation, tilling, sowing, harvesting, etc.
   • Income from sale of produce(e.g., wheat, rice, sugarcane, fruits).
   • Example: A farmer sells mangoes grown on his land for ₹2 lakhs—this is fully exempt.
3. Income from Farm Buildings
   • Rent from farmhouses, warehouses, or storage facilitiesused for agricultural purposes.
   • Conditions:
     • The building must be near agricultural land.
     • The land must be assessed for land revenue(or in rural areas).
   • Example: A farmer earns ₹30,000 from renting a barn used to store crops.

Examples of Exempted Agricultural Income

Non-Exempt Income (Not Considered Agricultural Income)

• Dairy farming, poultry, fisheries(e.g., selling milk, eggs, fish).
• Income from processing(e.g., making jam from fruits—only farming is exempt, not processing).
• Income from timber grown naturally(not cultivated).
• Income from urban farmland(if not used for agriculture).

Special Cases (Partial Exemption)

1. Tea Plantations: Only 60%is exempt as agricultural income; 40% is taxable as business income.
   • Example: If a tea estate earns ₹10 lakh, ₹6 lakh is exempt, and ₹4 lakh is taxable.
2. Coffee Plantations:
   • 75% exemptif grown and cured.
   • 60% exemptif roasted and ground.
3. Rubber Plantations: 65% exempt, 35% taxable.

Indirect Tax Impact (Partial Integration Scheme)

Even though agricultural income is exempt, it can affect tax rates on non-agricultural income if:

• Non-agricultural income exceeds ₹5,000
• Total income (agricultural + non-agricultural) exceeds the basic exemption limit (₹2.5 lakh for individuals <60 years)

Example of Tax Calculation:

• Agricultural Income: ₹3,00,000
• Non-Agricultural Income: ₹4,00,000
• Total Income: ₹7,00,000

Step 1: Calculate tax on ₹7,00,000 (agricultural + non-agricultural).
Step 2: Calculate tax on ₹5,50,000 (₹2.5 lakh exemption + ₹3 lakh agricultural income).
Final Tax: (Tax on ₹7,00,000) – (Tax on ₹5,50,000).

This ensures no direct tax on agriculture, but higher non-agricultural income may be taxed at a higher slab.