According to section 10(1) of the Income Tax Act, 1961, agricultural income has been exempted from taxation. Any income or revenue derived from sources like farming lands, buildings constructed on or identified with agricultural land, and the commercial produce received from agricultural land is known as agricultural income.
Section 2(1A) of the Income Tax Act, 1961 lays down the definition of agricultural income. According to this section, it is made up of the following components:
- Rent or revenue generated from an agricultural land situated in India. The consideration that is received from the right to use land is rent. So, any rent that is received through the use of such a land that is put to agricultural use and is located in India will be counted as agricultural income. This is just one example. There can be other possible uses of agricultural land which can become probable sources of income. One such example is fees received for renewing the grant of a piece of land on lease. However, if any consideration has been received from the sale of the land will not be counted as constituting agricultural income.
- Any income or revenue received from the land through agricultural operations such as processing the agricultural produce to make it fit for sale in the market.
- Revenue derived by renting or leasing buildings situated in and around is identified with agricultural land. This is subject to a few conditions. Firstly, the cultivator should have come to occupy this building courtesy rent or revenue. Secondly, the building should be used as a residence, storeroom or an outhouse. Lastly, the agricultural land or the land where the building in question is located is under assessment for land revenue or is being subjected to a local rate assessed.
Some salient features to be kept in mind when assessing and deciding what makes up agricultural income are:
- Income under assessment is from land already in existence
- Income is from such a land that is put to agricultural use
- Income is generated from products derived from the cultivation of land
- Income is from land not owned by the assessee