TaxSaral
Rule 271Agricultural Incomewas Rules 7A / 7B / 8 in IT Act 1961

Rule 271 — Fixed Splits for Tea, Coffee & Rubber

For Tea, Coffee, and Rubber — crops where growing and manufacturing are inseparably intertwined — the law prescribes fixed statutory percentage splits instead of requiring individual FMV calculations. This removes the need to determine a 'farm gate price' for these complex crops.

Who this applies to

Tea, coffee, and rubber plantation owners and manufacturers who grow and process their own crop.

Key Points

  • Tea (grown and manufactured): 60% of income is agricultural (exempt), 40% is business income (taxable).
  • Coffee (grown and cured only): 75% agricultural, 25% business.
  • Coffee (grown, cured, roasted AND grounded): 60% agricultural, 40% business — the extra processing shifts 15% from exempt to taxable.
  • Rubber (growing and manufacturing): 65% agricultural, 35% business.

Worked Examples

1

Tea estate — 60/40 split

Scenario

A tea estate in Assam earns ₹1,00,00,000 (₹1 crore) in total income from growing and manufacturing tea bags. What portion is taxable?

Calculation

Total income: ₹1,00,00,000

Rule 271 split for Tea (grown & manufactured):
  Agricultural income (60%): ₹60,00,000 → Exempt
  Business income (40%):     ₹40,00,000 → Taxable PGBP

Tax on ₹40L business income (default regime):
  ₹0–4L:    Nil
  ₹4L–8L:   5%  = ₹20,000
  ₹8L–12L:  10% = ₹40,000
  ₹12L–16L: 15% = ₹60,000
  ₹16L–20L: 20% = ₹80,000
  ₹20L–24L: 25% = ₹1,00,000
  ₹24L–40L: 30% = ₹4,80,000
  Total tax: ₹7,80,000 + 4% cess = ₹8,11,200

(Plus partial integration if there is other non-agri income)

Result

The estate pays tax on ₹40L (40% of revenue) — ₹60L is permanently exempt. No FMV calculations are needed; the 60/40 rule is applied mechanically to the total income.

2

Coffee — curing vs. roasting makes a difference

Scenario

A Karnataka coffee grower earns ₹50L. Compare: (A) selling cured coffee beans vs. (B) selling roasted and ground coffee.

Calculation

Option A — Grown and Cured only:
  Agricultural (75%): ₹37,50,000 → Exempt
  Business (25%):     ₹12,50,000 → Taxable

Option B — Grown, Cured, Roasted & Grounded:
  Agricultural (60%): ₹30,00,000 → Exempt
  Business (40%):     ₹20,00,000 → Taxable

Extra processing (roasting + grinding) shifts:
  Additional taxable income: ₹20L – ₹12.5L = ₹7,50,000
  Additional tax (approx.): ₹7.5L × 20% = ₹1,50,000

Result

Adding a roasting and grinding unit increases taxable business income by ₹7.5L — the extra processing reduces the agricultural exemption from 75% to 60%. The decision to add a roastery has a direct, quantifiable tax cost that must be weighed against the higher sale price of finished coffee.

Related Sections

Section 2(5) + Section 11Agricultural Income — Definition & Full Exemption
Rule 270Rule 270 — Separating Farm Income from Factory Profit
Schedule 2 + IT Rules (Partial Integration)Partial Integration — How Agricultural Income Raises Your Tax Bracket

Still have questions about Rule 271?

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative — verify with a Chartered Accountant before filing.