Under Section 2(1A) of the Income-tax Act, “agricultural income” covers four buckets:

• Rent or revenue from land in India used for agriculture.
• Income from agricultural operations on that land (tilling, sowing, growing, and the basic processing needed to make the produce market-ready—e.g., cleaning, drying, dehusking).
• Income from certain farm buildings used for/agriculturally connected activities (subject to conditions in the Act).
• Nursery income: any income from saplings/seedlings grown in a nursery is deemed agricultural income (even if not grown on open land).

Central tax treatment: Agricultural income is exempt from Central income tax u/s 10(1). You still disclose it in your ITR (Schedule “EI”).

2) Quick classifier — what’s in / what’s out

Treated as agricultural income (exempt u/s 10(1))

• Rent/revenue from agricultural land in India.
• Proceeds from crops grown on that land, including basic processing to make them market-ready.
• Eligible income from farm buildings used for agriculture (as per Sec 2(1A)).
• the Nurseries: income from the sale of saplings/seedlings.

Not agricultural income (taxable as business/other)

• Dairy, poultry, fisheries, beekeeping etc. — they do not involve cultivation of land.
• Trading/commission/mandi brokerage on agricultural produce (not “derived from land” in the required sense).
• Value-added processing beyond “market-ready” (e.g., tea/coffee manufacturing, rubber processing, making cheese/butter, food processing).
• Sale of spontaneously grown forest trees (no human cultivation).
• Dividends a shareholder receives from a company that does agriculture (not “from land” in the shareholder’s hands). These exclusions flow from the statute and the Supreme Court’s test in CIT v. Raja Benoy Kumar Sahas Roy on “basic operations” (cultivation) vs. non-agricultural activities.

“Composite” plantation cases — split by Rule (partly exempt, partly taxable)

When you grow and also manufacture/process the crop, the Rules split the income:

• Tea (Rule 8): 60% agricultural (exempt) / 40% business (taxable).
• Coffee (Rule 7B):
  • grown & cured → 75% agricultural / 25% business;
  • grown, cured, roasted & ground → 60% agricultural / 40% business.
• Rubber (Rule 7A): 65% agriculture / 35% business.

3) “Partial integration” — how agricultural income still affects your rate

Agricultural income itself is exempt, but if an individual/HUF has both agricultural and non-agricultural income, the law uses partial integration to find the slab rate for the non-agricultural part. The standard three-step method is:

1. Compute tax on (non-agricultural + agricultural).
2. Compute tax on (basic exemption limit for your regime + agricultural).
3. Step-1 minus Step-2 = tax on non-agricultural income (then add cess/surcharge, if any). Applies to individuals/HUFs/AOPs/BOIs/AJPs; not to companies/LLPs/firms.
   • Three other points to be considered
   • Applicability is where taxability is to be calculated on a slab rate basis.
   • Agricultural income should not be less than Rs5000
   • Non-Agricultural Income should not be below the taxable limit ( under the new regime, not less than Rs300000)

Tiny illustration (new regime slabs assumed)

Say non-agricultural income = ₹8,00,000 and agricultural income = ₹3,00,000.

• Step-1: tax on ₹11,00,000.
• Step-2: tax on ₹(basic exemption ₹3,00,000 + agricultural ₹3,00,000) = ₹6,00,000.
• Pay Step-1 – Step-2 on your non-agricultural income (plus cess).
  (Actual numbers vary with regime, rebates, deductions, surcharges.)

4) ITR forms & the new land-wise detail rule

• ITR-1 is allowed only if agricultural income is ≤ ₹5,000; otherwise, use ITR-2/3 as applicable.
• From AY 2025-26, if net agricultural income > ₹5 lakh, the ITR-2 utility requires land-wise details (district & PIN, etc.) in Schedule EI. Keep your land records ready.
• Same setoff and carry forward of losses and Income provisions in 2025 is the same as they were in AY 2022-23

5) Practical guardrails (to keep your claim safe)

• Maintain land title/lease, khasra-khatauni/RTC, crop plans, input bills (seed/fertiliser), mandi sale bills, weigh-bridge slips, and bank trails.
• For tea/coffee/rubber, keep separate books so the Rule-wise split is easy to apply (and reconcilable to returns).
• Use the Supreme Court’s “basic operations” test: income must be directly derived from the cultivation of land; if the produce is of spontaneous growth or the activity is a post-cultivation manufacturing step, that portion turns taxable.

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One-page classifier (ready reference)

Activity	Typical tax treatment	Why
Rent/revenue from agricultural land in India	Agricultural income (exempt)	Directly covered by Sec 2(1A) & Sec 10(1).
Growing crops + basic processing to make market-ready	Agricultural income (exempt)	Basic operations + necessary processing only.
Nursery: sale of saplings/seedlings	Agricultural income (exempt)	Deemed agricultural income (Explanation 3 to Sec 2(1A)).
Eligible farm-building receipts	Agricultural income (exempt)	Included in Sec 2(1A) subject to conditions.
Tea grown and manufactured	60% agricultural / 40% business	Rule 8 split.
Coffee grown & cured	75% agricultural / 25% business	Rule 7B(1).
Coffee grown, cured, roasted & ground	60% agricultural / 40% business	Rule 7B(1A).
Rubber grown & processed	65% agricultural / 35% business	Rule 7A split.
Dairy, poultry, fisheries, beekeeping	Non-agricultural (taxable)	No cultivation of land → not “agricultural income”.
Trading/commission on agricultural produce	Non-agricultural (taxable)	Not “derived from land” in the statutory sense.
Sale of spontaneously grown trees	Non-agricultural (taxable)	SC: no human cultivation → not agricultural income.

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1) The law—baseline (what’s exempt and why it still matters)

• What counts as “agricultural income”: rent/revenue from land in India used for agriculture; income from agricultural operations (plus only the basic processing needed to make produce market-ready); and certain farm-building receipts. Income from nurseries (saplings/seedlings) is deemed agricultural. This is the statutory definition in Section 2(1A).
• Central tax status: agricultural income is exempt from Central income tax u/s 10(1), but you must disclose it in Schedule EI.
• Partial integration (rate effect): for individuals/HUFs that have both agricultural and non-agricultural income, agricultural income is aggregated only to find the slab rate, then backed out; the agricultural part remains exempt. (The department’s tutorial on HUFs explains this “aggregation for rate” logic.)
• New ITR detail (AY 2025-26): if net agricultural income > ₹5 lakh, ITR-2 now asks for land-wise details (district with PIN, acreage, owned/leased, irrigated/rain-fed). This is explicitly printed in Schedule EI of the notified ITR-2 form.

2) What is not agricultural income (frequent misclassifications)

• Dairy, poultry, fisheries, and beekeeping: these do not involve the cultivation of land → not agricultural income. The classic Supreme Court test (CIT v. Raja Benoy Kumar Sahas Roy) limits “agriculture” to human effort on land; “spontaneous growth” of timber also fails.
• Value-added processing beyond “market-ready” (e.g., manufacturing tea/coffee/rubber products, making cheese/butter): the extra value-add is business income. For the plantation trio, the split is codified (below).
• Plantation split rules (Income-tax Rules): Tea → 60% agri / 40% business (Rule 8); Coffee grown & cured → 75/25, grown+cured+roasted/ground → 60/40 (Rule 7B); Rubber → 65/35 (Rule 7A). These percentages are reiterated in the Finance Bill notes.

3) How abuse is attempted—and why it is risky in 2025(misuse of Agricultural Income provisions)

Typical patterns the department is chasing (illustrative, not instructions):

1. “Paper farming”: big “agricultural income” with no land or implausible per-acre yields/prices. A nationwide probe reported cases showing ₹50-lakh-plus “agricultural income” without ownership/lease.
2. Re-routing unaccounted money as “agricultural sales”: accommodation bills/mandi receipts that don’t match acreage, inputs or season—now flagged by CPC analytics before refunds are released. Recent coverage cites ₹700-crore false exemption claims detected, slowing refunds while verifications run.
3. Land not under cultivation (or converted to real estate) while claiming agricultural exemption—detected via satellite imagery and on-ground checks.
4. Claiming 100% of plantation profits as agricultural income—ignoring Rule 7A/7B/8 splits.

What’s different in 2025:

• AI/data-analytics screening at CPC and field formations has been publicly signalled by CBDT; expect more nudges, queries, and delayed refunds where claims look abnormal.
• Upfront ITR-2 disclosures (land-wise) make it easier to cross-verify against land records and satellite imagery.

4) Consequences of misuse

• Penalty u/s 270A: 50% of tax on under-reported income; 200% if it’s misreporting (false claims, fake evidence).
• Prosecution u/s 276C (wilful evasion): 3 months–7 years plus fine (compounding is discretionary and costly).

5) Compliance playbook (do’s to stay safe)

1. Prove the “from land” test: keep title/lease papers; RoR/khasra-khatauni/RTC; crop plans; input bills (seeds, fertiliser, labour/wages); mandi sale bills; weigh-bridge slips; and bank trails. These support the Section 2(1A) definition and the Supreme Court’s “basic operations” test.
2. File correctly: disclose in Schedule EI; don’t use ITR-1 if agricultural income > ₹5,000; and if > ₹5 lakh, complete the land-wise grid in ITR-2 (district/PIN, acreage, ownership/lease, irrigation).
3. Apply plantation splits exactly (Tea 60/40; Coffee 75/25 or 60/40; Rubber 65/35) and keep separate books so the split is auditable.
4. Don’t over-claim processing: anything beyond “market-ready” is taxable business income—segregate it.
5. Capital-gains on land: “agricultural land” outside specified municipal limits/distance is not a capital asset; urban/near-urban land usually is (Sec. 2(14)(iii)). Don’t mis-tag.
6. Partial integration awareness: agricultural income stays exempt, but it can lift the rate on your non-agricultural income—plan advance tax accordingly.

6) Rapid classifier (use at review/sign-off time)

Item	Typical treatment	Evidence to keep
Crop receipts + basic processing (cleaning/drying)	Agricultural (exempt)	Land records, inputs, harvest/mandi bills, bank credits.
Nursery (saplings/seedlings)	Agricultural (deemed)	Nursery operations (inventory, sales), bank trail.
Farm-building receipts (qualifying)	Agricultural (conditions apply)	Use/proximity proof per Sec. 2(1A).
Tea/coffee/rubber (grown and manufactured)	Split as per Rules 7A/7B/8	Separate books for agricultural income vs business blocks.
Dairy/poultry/fisheries/beekeeping	Non-agricultural (taxable)	Business records; do not claim u/s 10(1).
Spontaneous forest growth	Non-agricultural (taxable)	(No cultivation → not agriculture.)

7) Quick diagnostic: five questions to ask before you file

1. Is there real cultivation on identified land? (If not, stop.)
2. Do the acres, cropping pattern, inputs, yields and sale bills align? (Mismatch triggers scrutiny in 2025.)
3. Are you claiming anything beyond “market-ready” processing as exempt? (Segregate and tax it.) i
4. Plantations: Have you applied 7A/7B/8 splits and parked each part in the right head?
5. ITR hygiene: using the right form, and—if > ₹5 lakh agricultural income—have you filled land-wise details?

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Bottom line

The exemption is real, but narrow and evidence-driven. In 2025 the combination of ITR land-wise disclosures, analytics at CPC, and satellite checks makes inflated or mis-tagged “agricultural income” unusually risky—penalties and even prosecution are on the table. If you keep the documentation above, apply the plantation splits precisely, and disclose correctly in ITR-2, you’ll be on solid ground.