Yes, agriculture income is exempt under section 10(1) of the Income-tax Act.
However it is included for tax rate purpose in computing the total Income-tax liability if following two conditions are cumulatively satisfied:
1. Net agricultural income is more than INR 5,000/- .
2. Total income, excluding net agricultural income is more than basic exempt slab limit (i.e. INR 2, 50,000/- for FY 2014-15).
In case above 2 conditions are satisfied then tax is computed as under:
Step 1 - Compute Income-tax liability on total income including agricultural income.
Step 2 - Compute tax rebate on agricultural Income. Tax rebate on agricultural income is Income-tax computed on total of agricultural Income + basic exempt slab limit
Step 3 - Subtract amount computed in Step 2 from amount computed in Step 1 to get the amount for total tax payable by the Individual.
As per Income-tax Act income earned from any of the under given three sources means agricultural Income;
(i) Any rent received from land which is used for agricultural purpose.
(ii) Any income derived from such land by agricultural operations including processing of agricultural product, raised or received as rent in kind so as to render it fit for the market, or sale of such produce.
(iii) Income attributable to a farm house subject to the condition that building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house, etc.
Now income earned from carrying nursery operations is also considered as agricultural income and hence exempt from income-tax.