CMA Intermediate · Direct and Indirect Taxation

Agricultural Income: formula sheet

Full chapter guide

Key formulas

Limb 1: Rent or revenue: Rent or revenue from land in India used for agricultural purposes = agricultural income; Applies to the landowner or revenue receiver who does not cultivate. The land must be in India and used for agriculture.
Limb 2: Agricultural operations and produce: Income from the land by agriculture, or by processing or selling produce raised or received as rent in kind = agricultural income; Processing counts only if it is the ordinary process to make produce fit for market. Further manufacturing is business income.
Limb 3: Farm building: Building owned and occupied by cultivator or rent receiver + on or near the land + used as dwelling house, store-house or outbuilding + land condition met = agricultural income; All conditions must be met together. A let-out building fails.
Agricultural land for TDS on property transfer: Section 402(2): agricultural land in India, excluding or including land in areas under section 2(22)(iii), depending on the table entry; Used only for the TDS provisions named there. Not the test for agricultural income.
Ordinary processing for market: Basic operations + subsequent operations + ordinary processing to make produce marketable = 100% agricultural income; No business income arises if the produce is only made fit for market.
Tea grown and manufactured by the grower: Agricultural income = 60% of composite profit; business income = 40%; Composite profit is computed as if it were business profit, before the split. Percentages come from the rules made under the Act.
Rubber grown and manufactured by the grower: Agricultural income = 65% of composite profit; business income = 35%; Same method as tea. Check that the rubber is grown and manufactured by the same person.
Coffee grown and cured by the grower: Agricultural income = 75%; business income = 25%; Applies when the grower grows and cures coffee.
Coffee grown, cured, roasted and ground: Agricultural income = 60%; business income = 40%; Extra processing (roasting and grinding) lowers the agricultural share.
Nursery income: Income from saplings or seedlings grown in a nursery = agricultural income; Applies to plants the person grows. It does not cover trading in bought plants.
Tea, coffee and rubber development accounts (section 48): Deduction on deposits into the special or deposit account, as per Schedule IX; Withdrawals, closure and sale of assets bought under the scheme are taxed as per Schedule IX. The section applies to a person growing and manufacturing tea, coffee or rubber in India.
Tea apportionment: Business income = 40% × composite profit; Agricultural income = 60% × composite profit; For tea grown and manufactured by the seller. Composite profit is computed as for business, after allowable deductions including depreciation.
Rubber apportionment: Business income = 35% × composite profit; Agricultural income = 65% × composite profit; For rubber manufactured from latex or cenex obtained from rubber plants grown by the seller.
Coffee grown and cured: Business income = 25% × composite profit; Agricultural income = 75% × composite profit; Seller grows the coffee and cures it.
Coffee grown, cured, roasted and ground: Business income = 40% × composite profit; Agricultural income = 60% × composite profit; Roasting and grinding add more processing, so the business share is higher.
Schedule IX deduction: Deduction = lower of (a) amount deposited in the specified account, and (b) 40% of the business profits computed under the head Profits and gains of business or profession before this deduction; Paragraph 1 of Schedule IX. The deduction is allowed before set off of brought-forward loss.
Conditions for the deduction: Business of growing and manufacturing tea, coffee or rubber in India + deposit before the earlier of six months from the end of the tax year or the due date of the return + accounts audited and report furnished by the specified date; Paragraph 2 of Schedule IX. A firm's partners cannot claim the deduction again. A deducted amount cannot be deducted again in another tax year.
Withdrawal and transfer consequences: Withdrawn amount not used for the scheme purpose, used for a specified article, or withdrawn on closure of business or dissolution of a firm = business profits of that tax year. Asset transferred within eight years from the end of the acquisition tax year = cost part relatable to the deduction becomes business profits; Paragraphs 3 and 5 of Schedule IX. The eight-year rule does not apply to transfers to the Government, a local authority, certain corporations or a Government company, or on specified succession of a firm by a company.
Condition 1: Non-agricultural income > basic exemption limit; Non-agricultural income means total income excluding agricultural income. Both conditions must hold.
Condition 2: Net agricultural income > ₹5,000; Use net agricultural income after allowed expenses. Exactly ₹5,000 does not satisfy the condition.
Who is covered: Individual, HUF, AOP, BOI, artificial juridical person; Companies are not covered. Firms and LLPs pay flat-rate tax, so no integration applies.
Tax under partial integration: Tax = Tax on (Non-agri income + Agri income) − Tax on (Agri income + Basic exemption limit); Compute both taxes on the same slab table. Then add surcharge if applicable and cess at 4%.
If conditions are not met: Tax = Tax on non-agricultural income only; Agricultural income stays fully exempt and is ignored for rate purposes.
Clause (a) activities: Deduction = whole profits and gains of business attributable to the listed activities; Banking or credit to members, cottage industry, marketing members' agricultural produce, supply of agricultural inputs to members, processing members' produce without power, collective disposal of labour, fishing and allied activities.
Clause (b) primary supply society: Deduction = whole profits and gains of the milk, oilseeds, cotton seed, cattle feed, fruits or vegetables supply business; The society must be a primary society and the produce must be raised or grown by members and supplied to the specified buyers.
Clause (c) other activities: Deduction = lower of attributable profit and ₹1,00,000 (consumers' society) or ₹50,000 (any other society); Applies to activities not covered by clause (a) or (b), alone or along with them.
Clause (d) and (e): Deduction = whole income from investments with another co-operative society (interest or dividend) + whole income from letting godowns or warehouses; Godown letting must be for storage, processing or facilitating marketing of commodities.
Clause (f) small societies: Deduction = interest on securities + income from house property, if GTI ≤ ₹20,000; Not for housing, urban consumers', transport or power-aided manufacturing societies.
Order of deduction: Section 149(2)(a), (b), (c) deduction is allowed on the income included in GTI after reducing any section 138 deduction; Sub-section (4) applies only to clauses (a), (b) and (c) and the cases in sub-section (3). It avoids a double deduction on the same income.
Co-operative banks: Section 149 does not apply to a co-operative bank unless it is a primary agricultural credit society or a primary co-operative agricultural and rural development bank; A standard exam trap.

Quick revision

Classify each receipt first: agricultural, non-agricultural or composite.
Agricultural income is generally outside the tax base, but it matters for rate purposes when other income exists.
Partial integration applies only when there is non-agricultural income above the basic exemption limit and there is agricultural income above the prescribed limit for the person concerned.
Partial integration method: tax on (non-agricultural income + agricultural income), minus tax on (basic exemption limit + agricultural income).
Use the slab rates applicable to the assessee's category and regime when computing both tax figures.
Composite income is split into the agricultural part and the business part. The agricultural part is exempt from tax but is counted for rate purposes through partial integration when its conditions are met. Only the business part is charged to tax.
Processing that merely makes produce fit for sale is treated differently from a full manufacturing process, so read the facts of each case.
Section 149 gives co-operative societies deductions from gross total income. The whole profit is deductible for clause (a) activities and for a primary society's supply of members' milk and similar produce under clause (b).
For activities other than those in clauses (a) and (b), the section 149 deduction applies to the profits attributable to those activities, capped at ₹1,00,000 for a consumers' co-operative society and ₹50,000 otherwise. Clauses (d), (e) and (f) give separate deductions.
Clause (f) (interest on securities and house property income under section 20) is available only to a society that is not a housing society, urban consumers' society, transport society or society manufacturing with the aid of power, and only if its gross total income does not exceed ₹20,000.
Under section 149(4), the deduction for clauses (a), (b), (c) and the voting-rights sub-section is worked out on the income in gross total income after reducing the section 138 deduction, if the society is entitled to it.
Section 149 does not apply to a co-operative bank unless it is a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Those two can claim the deduction if the income falls under section 149(2).
For labour and fishing societies, the deduction applies only if the bye-laws restrict voting rights to the classes of members listed in the section.
Show every step in written answers, including the apportionment and both tax figures.

Common mistakes

Treating all income of a farmer as agricultural income. Fix: Test each receipt on its own. Interest, a shop's income or dairy income are not agricultural income even if the owner is a farmer.
Treating income from land outside India as agricultural income. Fix: Check the location first. Foreign land income is taxed under the normal rules.
Treating all processing as business income. Fix: Check whether the process is only the ordinary one that makes produce marketable. If so, the income is fully agricultural.
Applying the 60:40 tea split to the sales figure instead of the profit. Fix: Compute the profit as if from business, then apply the percentage to that profit.
Applying the 60:40 split to tea bought from others and manufactured. Fix: Check that the seller grows the leaf. If leaf is purchased, the entire profit is business income.
Mixing up the rubber and coffee percentages. Fix: Memorise business shares as tea 40, rubber 35, coffee cured 25, coffee roasted and ground 40. Agricultural is the balance.
Adding agricultural income to total income and taxing the whole amount. Fix: Always subtract tax on agricultural income plus the basic exemption limit. Never show agricultural income inside total income.
Applying integration when non-agricultural income is at or below the basic exemption limit. Fix: Check both conditions every time. If non-agricultural income does not exceed the limit, tax is nil on it.
Giving full deduction for all business profit of a society. Fix: Only clauses (a), (b), (d) and (e) give the whole amount. Activities outside them fall under clause (c) with a cap.
Allowing the deduction to a co-operative bank. Fix: Sub-section (5) excludes co-operative banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

Exam tips

Write the three limbs as a short list in theory answers, then apply them to the facts.
In MCQs, look for the trap word: 'outside India', 'let out', 'manufactured' or 'dairy'. It usually makes the item non-agricultural.
Always state the land condition (in India and used for agriculture) before the limb. Markers give a step mark for it.
Do not quote section numbers you are unsure of. Name the Act and write the rule in words.
If the question mentions other income, add one line on partial integration.
Write the classification (basic, subsequent, ordinary processing, further processing) in the first line. Step marks go to the logic.
In tea, coffee and rubber problems, always show the composite profit first, then the split, then where each part goes.
Learn the four percentages as a pair: tea 60:40, rubber 65:35, coffee 75:25 and 60:40.