KEY DETAILS

1. Agricultural income is not subject to income tax. The Income-tax Act has, however, specified how such income is to be indirectly taxed. This is called the partial integration of agricultural and non-agricultural income. 
2. Agricultural income is not taxable under Section 10 (1) of the Income Tax Act as it is not counted as a part of an individual's total income. 
3. However, the state government can levy tax on agricultural income if the amount exceeds Rs.5,000 per year. It is categorised as a valid source of income and basically includes income from sources that comprise agricultural land, buildings on or related to an agricultural land and commercial produce from an agricultural land. This income is considered for rate purposes while calculating the income tax liability of an individual. 
4. As per the finance act, the total tax liability for a person would include the agriculture income added to the non-agricultural portion. Income above Rs.5,000: Though exempted from tax through Section 10 (1), tax on agricultural income can be levied at the state level if the mentioned income exceeds INR 5000 per year and if the total income excluding agricultural income is more than the basic exemption limit.  
5. Section 2 (1A) of the Income Tax Act details out the conditions wherein sources can be considered to be generating agricultural income. The section’s definitions basically point out the following as the sources for agricultural income – 
   1. The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed. 
   2. Any income due to commercial use of agricultural land 
   3. Renting/leasing agricultural land for by cultivator or farmer.
   4. Money earned from trees growing in nurseries as seedlings or saplings. 
   5. Renting/leasing agricultural land for agriculture, storeroom, residential place and outhouse. 
6. Exclusion to this income 
   1. Revenue from sale of processed produce of agricultural nature without actual agricultural activity 
   2. Revenue from extremely processed produce 
   3. Revenue from trees that have been sold as timber