Tax Treatment of Income Which Partially Agricultural and Partially From Business [Rule 7, 7a, 7b and 8]

For disintegrating a composite business income which is partly agriculture and partly non-agricultural, the following rules are applicable – Income derived from the sale of tea, Coffee, Rubber grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.

Income

Non-agricultural Income

Agricultural Income

Income Tax Rules

  • Growing and manufacturing tea in India
  • Sale of Centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanked crepe or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India
  • Sale of coffee grown and cured by seller
  • Sale of coffee grown, cured, roasted and grounded by seller in India with or without mixing chicory or other flavouring ingredients

40%

35%

25%

40%

60%

65%

75%

60%

Rule 8

Rule 7A

Rule 7B(1)

Rule 7B(1A)

 Reference: Rule 8

Income from the manufacture of tea

(1) Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.

(2) In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income.

Reference: Rule 7A

Income from the manufacture of rubber

(1) Income derived from the sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and thirty-five per cent of such income shall be deemed to be income liable to tax.

(2) In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (31) of section 10, is not includible in the total income.

Reference: Rule 7B

Income from the manufacture of coffee

(1) Income derived from the sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from business, and twenty-five per cent of such income shall be deemed to be income liable to tax.

(1A) Income derived from the sale of coffee grown, cured, roasted and grounded by the seller in India, with or without mixing chicory or other flavouring ingredients, shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.

Explanation : For the purposes of sub-rules (1) and (1A) “curing” shall have the same meaning as assigned to it in clause (d) of section 3 of the Coffee Act, 1942 (7 of 1942)

(2) In computing the incomes referred to in sub-rules (1) and (1A), an allowance shall be made in respect of the cost of planting coffee plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (31) of section 10, is not includible in the total income.

How to Calculate Income Tax on Agriculture Income, Capital Gain of Land Sale

How to Calculate Income Tax on Agriculture Income and Meaning of Agriculture Income and capital gain tax on agriculture land. 

Section 10(1) exempts agricultural Income Tax. By virtue of Section 2(1A) the expression “Agricultural income” means:

  1. Any rent or revenue derived from land which is situated in India and is used for agricultural purpose
  2. Any income derived from such land by agricultural operations including processing of the agricultural produce, raised or received as rent in kind so as to render it fit for the market or sale of such produce
  3. Income attributable to a farm house subject to certain conditions

Read How to Calculate Income Tax on Agriculture Income With effect from the assessment year 2009-10, any income derived from saplings or seedlings grown in a nursery shall be considered deemed to be agricultural income.

where the assessee has, in the previous year, any net agricultural income exceeding five thousand rupees, in addition to total income, and the total income exceeds two lakh rupees, then,—

(a) the net agricultural income shall be taken into account, in the manner provided in clause (b) [that is to say, as if the net agricultural income were comprised in the total income after the first two lakh rupees of the total income but without being liable to tax], only for the purpose of charging income-tax in respect of the total income; and
(b) the income-tax chargeable shall be calculated as follows:—
(i) the total income and the net agricultural income shall be aggregated and the amount of income-tax shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income;
(ii) the net agricultural income shall be increased by a sum of two lakh rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in the said Paragraph A, as if the net agricultural income as so increased were the total income;
(iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax in respect of the total income:
Provided that in the case of every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the previous year, referred to in item
(II) of Paragraph A of Part I of the First Schedule, the provisions of this sub-section shall have effect as if for the words “two lakh rupees”, the words “two lakh fifty thousand rupees” had been substituted:
Provided further that in the case of every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year, referred to in item (III) of Paragraph A of Part I of the First Schedule, the provisions of this sub-section shall have effect as if for the words “two lakh rupees”, the words “five lakh rupees” had been substituted. 
What is considered as Rural Agriculture Land under Income Tax for Capital Gain Tax

Reference: Section 2(1A) of the Income Tax Act

(1A) “agricultural income” means—

(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—

(i)  Agriculture; or

(ii)  the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or

(iii)  the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;

(c)  any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :

Provided that—

(i)  the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and

(ii)  The land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—

(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or

(B) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (A), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.

Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section.

Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income.

Explanation 3.—for the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income;

What is considered as Rural Agriculture Land under Income Tax for Capital Gain Tax

Income Tax on agriculture land in India and what do we mean by rural agriculture land for calculation of capital gain on agriculture property. Rural Agriculture land is not considered as capital asset as per section 2(14) of the Income Tax Act. Agriculture Income is Exempted from Income as per section 10(1) of Income Tax Act,  Also as per section 10(37) Capital gain to individual/HUF on compensation received on compulsory acquisition of urban agriculture land.

Meaning of Rural agriculture land in India:

  1. It situated in any area which is comprised within the jurisdiction of a municipality ( whether known as a municipality, municipal corporation, notified area committee, town committee or by any other name) and its population should be less than 10,000 as per the last published census, or
  2. If situated outside the limit of municipality, etc., it should be situated certain kilometers away from the local limits of any municipality, etc. as may be specified by the Central government in the official Gazette. The Central government can notified urban land upto maximum 8Kms from the limits of municipality, etc.

Reference: Section 2(14)(iii) of the Income Tax Act

(iii)  agricultural land in India, not being land situate—

(a)  in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b)  in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;