Income of a dairy farming is exempt under income tax act
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 December 2012
The company has procured the cows and entered into milk producing & selling directly to milk producing co op.society.The company is also process the milk so produced like pasturing of milk and packing the same into various types of packing e.g.500 gm, 1 litre etc.Whether the activity of milk producing and selling is covered within the defination of Agricultral income. Whether the pasturing and packing into different types of weights covers under the words subsquent operations and treats as Agricultral income.
18 December 2012
It is not covered under the definition of Agriculture income since the income has not arisen from the agriculture activities or operations. As such the income is taxable.
12 January 2013
Sir,
What about 80(IB ) Deduction.
What about 80(IB ) Deduction.
31 July 2024
### **1. Classification of Dairy Farming Income under the Income Tax Act**
**Agricultural Income Definition:**
Under the Income Tax Act, agricultural income is defined as income derived from the following sources:
- **Agricultural Operations:** Directly from land which is used for growing crops.
- **Income from Farm Produce:** Income from the sale of produce that is grown on agricultural land.
**Dairy Farming and Agricultural Income:**
1. **Milk Production:**
- **Direct Income:** Income from the sale of milk and milk products, where the company directly produces milk from cows, is generally considered agricultural income.
- **Directly Related:** Since dairy farming involves the rearing of cows on agricultural land and the direct sale of milk, it aligns with the definition of agricultural income.
2. **Subsequent Operations:**
- **Processing and Packing:** Processing milk (e.g., pasteurization) and packing it into various sizes (500 gm, 1 liter, etc.) are considered subsequent operations. These activities are usually treated as processing of agricultural produce and not agricultural income per se.
- **Income Treatment:** Income from processing and packing milk is generally treated as business income and not as agricultural income. This is because the activities extend beyond mere agriculture and involve manufacturing processes.
### **2. Section 80-IB Deduction**
**Eligibility for Deduction under Section 80-IB:**
- **Deductions for Industries:** Section 80-IB of the Income Tax Act provides deductions for profits and gains derived from certain industries or businesses, including those engaged in the production of agricultural produce or in specific manufacturing processes.
- **Criteria:**
- **Business of Manufacturing:** The section applies to businesses engaged in manufacturing or production of specified goods.
- **Dairy Farming:** Since dairy farming is primarily an agricultural activity, and the primary income is from agriculture, the dairy farming itself would not typically qualify for the Section 80-IB deduction. However, if the company has a manufacturing unit where it processes milk and produces value-added products (e.g., cheese, butter), the manufacturing unit could potentially qualify for deductions under Section 80-IB, provided it meets the criteria specified under the section.
### **3. Detailed Explanation of Exemptions and Deductions:**
**Agricultural Income:**
- **Exemption:** Agricultural income is exempt from tax under the Income Tax Act. However, this exemption is subject to certain conditions and limits.
**Business Income:**
- **Processing and Packing:** Income derived from processing (e.g., pasteurizing) and packing of milk would be classified as business income and subject to regular income tax. This is because these activities are considered manufacturing or processing, which moves beyond the scope of agricultural income.
**Section 80-IB:**
- **Claiming Deduction:** To claim a deduction under Section 80-IB:
- Ensure the business is engaged in manufacturing or processing of products.
- Verify compliance with specific conditions, such as maintaining proper records, meeting prescribed thresholds, and ensuring the business activity qualifies under the section.
### **Summary:**
1. **Dairy Farming Income:**
- **Milk Production:** Treated as agricultural income.
- **Processing and Packing:** Treated as business income.
2. **Section 80-IB Deduction:**
- **For Processing Units:** If the company processes milk into value-added products, the processing segment may be eligible for Section 80-IB deduction, provided it meets the section's criteria.
In conclusion, the income from directly selling milk is considered agricultural income, while income from processing and packing milk is treated as business income. For claiming deductions under Section 80-IB, ensure that the processing activities meet the requirements laid out in the section.
**Agricultural Income Definition:**
Under the Income Tax Act, agricultural income is defined as income derived from the following sources:
- **Agricultural Operations:** Directly from land which is used for growing crops.
- **Income from Farm Produce:** Income from the sale of produce that is grown on agricultural land.
**Dairy Farming and Agricultural Income:**
1. **Milk Production:**
- **Direct Income:** Income from the sale of milk and milk products, where the company directly produces milk from cows, is generally considered agricultural income.
- **Directly Related:** Since dairy farming involves the rearing of cows on agricultural land and the direct sale of milk, it aligns with the definition of agricultural income.
2. **Subsequent Operations:**
- **Processing and Packing:** Processing milk (e.g., pasteurization) and packing it into various sizes (500 gm, 1 liter, etc.) are considered subsequent operations. These activities are usually treated as processing of agricultural produce and not agricultural income per se.
- **Income Treatment:** Income from processing and packing milk is generally treated as business income and not as agricultural income. This is because the activities extend beyond mere agriculture and involve manufacturing processes.
### **2. Section 80-IB Deduction**
**Eligibility for Deduction under Section 80-IB:**
- **Deductions for Industries:** Section 80-IB of the Income Tax Act provides deductions for profits and gains derived from certain industries or businesses, including those engaged in the production of agricultural produce or in specific manufacturing processes.
- **Criteria:**
- **Business of Manufacturing:** The section applies to businesses engaged in manufacturing or production of specified goods.
- **Dairy Farming:** Since dairy farming is primarily an agricultural activity, and the primary income is from agriculture, the dairy farming itself would not typically qualify for the Section 80-IB deduction. However, if the company has a manufacturing unit where it processes milk and produces value-added products (e.g., cheese, butter), the manufacturing unit could potentially qualify for deductions under Section 80-IB, provided it meets the criteria specified under the section.
### **3. Detailed Explanation of Exemptions and Deductions:**
**Agricultural Income:**
- **Exemption:** Agricultural income is exempt from tax under the Income Tax Act. However, this exemption is subject to certain conditions and limits.
**Business Income:**
- **Processing and Packing:** Income derived from processing (e.g., pasteurizing) and packing of milk would be classified as business income and subject to regular income tax. This is because these activities are considered manufacturing or processing, which moves beyond the scope of agricultural income.
**Section 80-IB:**
- **Claiming Deduction:** To claim a deduction under Section 80-IB:
- Ensure the business is engaged in manufacturing or processing of products.
- Verify compliance with specific conditions, such as maintaining proper records, meeting prescribed thresholds, and ensuring the business activity qualifies under the section.
### **Summary:**
1. **Dairy Farming Income:**
- **Milk Production:** Treated as agricultural income.
- **Processing and Packing:** Treated as business income.
2. **Section 80-IB Deduction:**
- **For Processing Units:** If the company processes milk into value-added products, the processing segment may be eligible for Section 80-IB deduction, provided it meets the section's criteria.
In conclusion, the income from directly selling milk is considered agricultural income, while income from processing and packing milk is treated as business income. For claiming deductions under Section 80-IB, ensure that the processing activities meet the requirements laid out in the section.
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