In this post, we will discuss on the topic of Agricultural Income in India.
We will cover the following topics for you:
- What is Agricultural Income?
- Tax Applicability and Computation
- Rebate on Agriculture Income
- Important Points
What is Agricultural Income?
Agricultural income is defined under Section 2(1A) of the IT Act, 1961. It can be of 3 types:
- Rent received from the agricultural land situated in India.
- Income from the sale of agriculture products.
- Income from the farm building required for agriculture purposes.
- Any income from saplings /seedlings grown in a nursery is under agricultural income.
- Income from agricultural activities done on the land (urban/rural) is agricultural income and exempted from tax.
Examples of Agricultural Income
The following are some examples:
- Income derived from the sale of replanted trees.
- Income from the sale of seeds.
- Rent received for agricultural land.
- Income from growing flowers and creepers.
- Profits from a partner whose firm engaged in agricultural production/activities.
- Interest on capital that a partner from a firm in agricultural operations, receives.
Examples of Non-Agricultural Income
Some examples of non-agricultural income:
- Income from poultry farming.
- Income from bee hiving.
- Any dividend an organization pays from its agriculture income.
- Income from the sale of spontaneously grown trees.
- Income from dairy farming.
- Income from salt produced after it is flooded with sea water.
- Purchase of standing crop.
- Royalty income from mines.
- Income from butter and cheese making.
- Receipts from TV serial shooting in farm house.
Tax applicability and Computation
As per Section 10(1) of the ITA, agricultural income is exempted from taxation. The central government cannot levy a tax on this income.
However, this income is considered for rate purposes while calculating the income tax liability if the 2 conditions are met:
- Net agricultural income is greater than Rs. 5,000 for the previous year.
- Total income, excluding net agricultural income, is over the basic exemption limit (Rs. 2,50,000 for individuals below 60 years old and Rs. 3 lakhs for individuals above 60 years old.)
So, the tax liability is then computed as:
Step 1: If Agricultural income is taken as X and other income is Y. The tax computed on X+Y is T1.
Step 2: Basic exemption slab for income tax payment is A. Tax computed on A+X is T2.
Step 3: The income tax liability is T1- T2.
Rebate u/s 87A, Surcharge, Cess is applicable in addition to the tax calculated.
Rebate on Agriculture Income
A complete tax rebate is possible if:
- The total agricultural income is < Rs. 5,000.
- The income from agricultural land is your only source of income (no other income)
- You have both agricultural income and other income. The total income (excluding agricultural income) is less than the basic exemption limit.
Rebate Computation Process
If your agricultural income is > Rs. 5,000 and has other sources of income then, that year’s tax liability is calculated as:
Step 1:Compute tax on the aggregate income (agricultural income + other income) according to the existing tax rate.
Step 2:Compute tax on the sum of the amount of basic exemption limit plus agricultural income as per the prevailing income tax rates.
Step 3: To arrive at the tax liability for the year, compute (Step1) – (Step 2). This your final tax amount.
The valid conditions for an income to be considered as agricultural income are the following:
- Income is earned from an already existing piece of land.
- Income earned from the products cultivated in the land.
- Income from land used only for agricultural purposes.
- Income from a land that is not under the ownership of assessee’s.
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