Treatment of Partly Agricultural and Partly Non-Agricultural Income
by Some activities generate income that contains both an agricultural component and a non agricultural component. Such income is called partly agricultural and partly non agricultural income. The Income tax Act, 2025 provides specific rules for determining the taxable portion in such cases. The agricultural portion is generally exempt, while the non agricultural portion is included in taxable income. For certain specified activities, the law prescribes fixed percentages for dividing the income between agricultural and non agricultural components. Therefore, proper classification is essential for calculating the correct tax liability.
1. Meaning
Partly agricultural and partly non agricultural income arises when an assessee carries out an activity involving both agricultural operations and further commercial or manufacturing operations.
For example, a person may grow tea leaves and subsequently process them before selling the tea. The income does not entirely arise from agricultural operations. Therefore, the law divides the income into an agricultural portion and a non agricultural portion.
The agricultural portion receives the applicable exemption, while the non agricultural portion is taxable.
2. Tea Growing and Manufacturing
Income from the business of growing and manufacturing tea in India is treated as partly agricultural and partly non agricultural.
Under the prescribed rule:
60% of income = Agricultural income
40% of income = Non agricultural income
The agricultural portion is generally exempt, while the remaining 40% is included in taxable income.
Example
Profit from tea business = ₹10,00,000
Agricultural portion:
₹10,00,000 × 60% = ₹6,00,000
Non agricultural portion:
₹10,00,000 × 40% = ₹4,00,000
Thus, ₹6,00,000 is treated as agricultural income and ₹4,00,000 is taxable as non agricultural income.
3. Growing and Manufacturing of Rubber
Income from the business of growing and manufacturing rubber in India is also divided into agricultural and non agricultural components.
The prescribed allocation is:
65% = Agricultural income
35% = Non agricultural income
Example
Income from rubber business = ₹8,00,000
Agricultural portion:
₹8,00,000 × 65% = ₹5,20,000
Non agricultural portion:
₹8,00,000 × 35% = ₹2,80,000
Therefore, ₹5,20,000 is agricultural income and ₹2,80,000 is taxable non agricultural income.
4. Growing and Manufacturing of Coffee
Income from the business of growing and manufacturing coffee in India may also contain both agricultural and non agricultural elements.
Where coffee is grown and cured by the seller, the prescribed division is generally:
75% = Agricultural income
25% = Non agricultural income
Example
Income from coffee business = ₹12,00,000
Agricultural portion:
₹12,00,000 × 75% = ₹9,00,000
Non agricultural portion:
₹12,00,000 × 25% = ₹3,00,000
Thus, ₹9,00,000 is treated as agricultural income and ₹3,00,000 is taxable.
5. Coffee Grown, Cured, Roasted and Ground
Where coffee is grown, cured, roasted and grounded by the seller in India and sold in a form suitable for consumption, a different allocation may apply.
The prescribed division is generally:
60% = Agricultural income
40% = Non agricultural income
Example
Total income = ₹5,00,000
Agricultural income:
₹5,00,000 × 60% = ₹3,00,000
Non agricultural income:
₹5,00,000 × 40% = ₹2,00,000
The agricultural portion is generally exempt, while the non agricultural portion is included in taxable income.
6. General Principle of Treatment
The basic principle is:
Total Composite Income = Agricultural Portion + Non Agricultural Portion
The agricultural portion is generally excluded from total income under the applicable provisions, while the non agricultural portion is taxable according to the relevant provisions.
However, agricultural income may be considered for partial integration of agricultural income with non agricultural income for determining the applicable rate of tax in specified cases. Therefore, exempt agricultural income does not necessarily mean that it is completely irrelevant for all tax purposes.
7. Importance of Prescribed Percentage
For specified composite agricultural activities, the law uses prescribed percentages rather than requiring the taxpayer to separately calculate every agricultural and non agricultural expense.
This provides a standard method of allocation and helps maintain uniformity in taxation.
For example:
| Activity | Agricultural | Non gricultural |
|---|---|---|
| Tea | 60% | 40% |
| Rubber | 65% | 35% |
| Coffee, grown and cured | 75% | 25% |
| Coffee, grown, cured, roasted and ground | 60% | 40% |
8. Tax Treatment
The agricultural portion is generally exempt, while the non agricultural portion is taxable. The taxable portion is included under the appropriate head of income depending upon the nature of the activity, usually business or profession.
Where partial integration applies, agricultural income may also be considered for determining the applicable rate of tax, subject to the prescribed conditions.