# Agricultural Income - Exemption u/s 10(1)
## Constitutional Background
- Entry 46, List II (State List) of the Seventh Schedule: Power to levy tax on agricultural income vests with States, not the Union.
- The Central Government (under section 10(1) of Income-tax Act) exempts agricultural income arising in India from income tax.
- This is why agricultural income is fully exempt at the Central level — it is purely a state matter.
## Definition - Section 2(1A)
The definition is very wide and covers income to:
- Not only the cultivator of the land, but also
- The landholder who has let out the land
## Forms of Agricultural Income
Agricultural income may be received in:
- Cash, or
- Kind (share of crops, etc.)
## Three Limbs of Section 2(1A)
1. (a) Any rent or revenue derived from land situated in India and used for agricultural purposes.
2. (b) Any income derived from such land by:
- Agricultural operations
- Performance of process to render produce marketable
- Sale of such produce by the cultivator/receiver of rent-in-kind without further processing
3. (c) Income from a farm building required for agricultural operations (subject to conditions).
## Key Tests for 'Agricultural Income'
- Land must be situated in INDIA (foreign agricultural income is taxable as 'Income from Other Sources').
- Land must be used for AGRICULTURAL purposes.
- Basic operations (tilling, sowing, planting, etc.) must be performed.