Section 2 of ITA, 1961 : Section 2: Definitions

Explanation using Example

Let's say Mr. Sharma owns a piece of land in a rural area of India which he uses for growing wheat. The income he earns from the sale of the wheat is considered agricultural income under the Income-tax Act, 1961.

Since the land is used for agricultural purposes and Mr. Sharma is cultivating it, the rent he receives (if any) and the revenue from selling the wheat directly from the farm, without undergoing any industrial processes, is classified as agricultural income. Furthermore, if Mr. Sharma has a farmhouse on the land used primarily as a dwelling or for storing farm produce, the income from the farmhouse would also be considered agricultural income, provided it meets the conditions specified in the Act.

However, if Mr. Sharma decides to build a residential complex on part of his agricultural land and rents it out, the income from the residential complex would not be considered agricultural income, as per Explanation 2 of the Act.