Direct and Indirect Taxation · Agricultural Income

Composite Income and Its Apportionment for Tea, Coffee and Rubber

Updated 10 October 2026 · Fact-checked

Composite income arises when one business both grows and processes a crop, such as tea, coffee or rubber. You first compute the total business profit, then split it by fixed percentages. The agricultural share is not taxed as business income. The business share is taxed under Profits and gains of business or profession.

Understand Composite Income and Its Apportionment

Some businesses grow a crop and then process it before sale. A tea estate grows leaf and makes manufactured tea. Part of the profit comes from farming. Part comes from the factory. Such profit is called composite income.

Agricultural income is treated differently from business income. So the profit must be divided. For tea, coffee and rubber the law does not ask you to value the farm and factory separately. It gives fixed percentages. You compute the profit as if it were all business profit, then apply the percentage.

The usual split is: tea grown and manufactured by the seller, 60% agricultural and 40% business. Rubber made from latex or cenex of plants grown by the seller, 65% agricultural and 35% business. Coffee grown and cured by the seller, 75% agricultural and 25% business. Coffee grown, cured, roasted and ground by the seller, 60% agricultural and 40% business. These percentages come from the income-tax rules on composite income. The exact rule numbers under the 2025 Act should be checked in your study material.

The percentages apply only when the seller both grows and processes. If a company buys green leaf and manufactures tea, the whole profit is business income. If it only grows and sells raw produce, the whole is agricultural income.

The business share may also get a special deduction. Under section 48 and Schedule IX of the Income-tax Act, 2025, an assessee growing and manufacturing tea, coffee or rubber in India can claim a deduction for deposits in a specified account (a special account with NABARD or a deposit account under the Tea, Coffee or Rubber Board scheme). This is covered in the formulas and steps below.

Key rules to remember

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.

How to solve Composite Income and Its Apportionment questions

Use this order for any composite income question. Do not split anything until the full profit is computed.

1Identify the crop and the activity: does the assessee grow and process it, or buy and process? Only own-grown produce attracts the split.
2Pick the correct percentage: tea 40% business, rubber 35% business, coffee cured 25% business, coffee roasted and ground 40% business.
3Compute the composite profit: sales less all expenses of growing and processing, including depreciation and other allowable items. Ignore items that are not deductible as per business rules.
4Apply the percentage to get the business income and the agricultural income. Show both figures.
5If a deposit in a specified account is given, check the conditions: timing of deposit, audit, India-based business.
6Compute the deduction as the lower of the amount deposited and 40% of the business profits. Subtract it from the business share.
7Then set off any brought-forward business loss, because the deduction comes first.
8State the final figures: taxable business income and agricultural income, and say agricultural income is treated as per the agricultural income rules.

Quickest way: Percentage split in four lines

When to use it: Use for MCQs and for the first part of any numerical question when the profit is already stated.

Write the crop and activity, then the business percentage (tea 40, rubber 35, coffee 25 or 40).
Multiply the profit by that percentage for business income. The balance is agricultural.
If a deposit is mentioned, take 40% of the business income and compare it with the deposit. Deduct the lower.
Deduct brought-forward loss last. Check that business plus agricultural equals the original profit.

Common mistakes in Composite Income and Its Apportionment

Applying the 60:40 split to tea bought from others and manufactured.
Students see the word tea and apply the rule automatically.
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.
Three crops, four percentages, and they look alike.
Fix: Memorise business shares as tea 40, rubber 35, coffee cured 25, coffee roasted and ground 40. Agricultural is the balance.
Computing the 40% deduction limit on the composite profit.
Students forget that two different 40% figures exist.
Fix: The limit is 40% of the business profits computed under the head Profits and gains of business or profession, which is the business share after apportionment.
Setting off brought-forward loss before the deposit deduction.
Students follow the usual order of loss set off.
Fix: Schedule IX says the deduction is allowed before set off of brought-forward loss from earlier tax years. Deduct first, then set off the loss.
Ignoring the deposit timing and audit conditions.
The numbers are easy, so the conditions are skipped.
Fix: State that the deposit must be made before the earlier of six months from the end of the tax year or the due date of the return, and that audit is required.
Forgetting depreciation and other business deductions while computing composite profit.
The percentage step feels like the main task.
Fix: Always compute profit first, using the business computation rules, then apply the percentage.

Worked examples

Example 1

Shree Hills Tea Ltd grows tea leaf in its Assam estate and manufactures tea. Sale of manufactured tea is ₹80,00,000. Cost of cultivation and manufacture is ₹36,00,000 and depreciation allowable is ₹4,00,000. The company deposits ₹10,00,000 in a special account with NABARD within the permitted time and gets accounts audited. There is no brought-forward loss. Find the business income and agricultural income.

Show the solution

Composite profit = ₹80,00,000 − ₹36,00,000 − ₹4,00,000 = ₹40,00,000.
Tea grown and manufactured by the seller: business 40%, agricultural 60%.
Business income before deduction = 40% × ₹40,00,000 = ₹16,00,000.
Agricultural income = 60% × ₹40,00,000 = ₹24,00,000.
Deduction limit = 40% × ₹16,00,000 = ₹6,40,000.
Deposit = ₹10,00,000. Lower of ₹10,00,000 and ₹6,40,000 = ₹6,40,000.
Taxable business income = ₹16,00,000 − ₹6,40,000 = ₹9,60,000.

Answer: Business income is ₹9,60,000 after the Schedule IX deduction of ₹6,40,000. Agricultural income is ₹24,00,000, which is dealt with under the agricultural income rules.

Example 2

Kerala Rubber Co. manufactures rubber from latex of its own plantation. Composite profit for the tax year is ₹20,00,000. It has a brought-forward business loss of ₹2,00,000 and deposits ₹4,00,000 in a deposit account within time, with the audit done. Compute the taxable business income and the agricultural income.

Show the solution

Rubber from own latex: business 35%, agricultural 65%.
Business income before deduction = 35% × ₹20,00,000 = ₹7,00,000.
Agricultural income = 65% × ₹20,00,000 = ₹13,00,000.
Deduction limit = 40% × ₹7,00,000 = ₹2,80,000.
Lower of deposit ₹4,00,000 and limit ₹2,80,000 = ₹2,80,000.
Business income after deduction = ₹7,00,000 − ₹2,80,000 = ₹4,20,000.
Set off brought-forward business loss after the deduction: ₹4,20,000 − ₹2,00,000 = ₹2,20,000.

Answer: Taxable business income is ₹2,20,000. Agricultural income is ₹13,00,000.

Exam tips

Read the question for who grows the crop. Own-grown and processed means split. Purchased produce means full business income.
In MCQs, the usual trap is the wrong percentage. Write the four business shares on your rough sheet first.
In written answers, show composite profit, business share, agricultural share and the deduction as separate lines. Each earns step marks.
Whenever a deposit is given, test the lower-of rule and state the conditions in one line.
Mention that the Schedule IX deduction comes before brought-forward loss set off. Examiners look for this order.

Practice questions from Agricultural Income

Composite Income and Its Apportionment: frequently asked questions

What is the composite income split for tea?

For tea grown and manufactured by the seller, 60% of the profit is agricultural income and 40% is business income. You compute the profit as for business first. Then you apply the percentages.

Does the split apply if I buy green tea leaf?

No. The split is for sellers who grow and also process. If the leaf is purchased, the whole profit from manufacture is business income.

How much deduction is allowed for a tea, coffee or rubber development account deposit?

Under Schedule IX of the Income-tax Act, 2025, it is the lower of the amount deposited and 40% of the business profits before the deduction. The deposit must be in the specified account within the time limit, and the accounts must be audited.

What happens if I withdraw the deposit?

If the amount is not used for the scheme purpose, or is used for specified articles such as office appliances, it is treated as business profits of that tax year. Withdrawal on closure of business or dissolution of a firm is also treated as business profits.