Agricultural Income

Submitted to A. Balasubramaniam Submitted by Name Vikas Dusa Priyam Gaekward Rupesh Jadhav Amol Kadham Nayanatara Sable Roll No 14 15 24 28 51

Agricultural Income
Definition Agriculture income is exempt under the Indian Income Tax Act. This means that income earned from agricultural operations is not taxed. The reason for exemption of agriculture income from Central Taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Legislature. However while computing tax on non-agricultural income agricultural income is also taken into consideration.

What does the term Agricultural Income mean?

As per Income Tax Act income earned from any of the under given three sources meant 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 produce, 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.

Criteria for Considering Income as Agriculture Income

(i) (ii) (iii) (iv) (v) (vi) There must me a land. The land is being used for agricultural operations Land cultivation is must If any rent is being received from the land then in order to assess that rental income as agricultural income there must be agricultural activities on the land. In order to assess income of farm house as agricultural income the farm house building must be situated on the land itself only and is used as a store house/dwelling house. Ownership is not essential

Criteria for Considering Income as Agriculture Income

Examples
(a) Income from sale of replanted trees.

(b) Rent received for agricultural land.

(c) Income from growing flowers and creepers. (d) Share of profit of a partner from a firm engaged in agricultural operations. (e) Interest on capital received by a partner from a firm engaged in agricultural operations.

(f) Income derived from sale of seeds.

Certain income which is not treated as Agricultural Income

Examples
(a) Income from poultry farming. (b) Income from bee hiving. (c) Income from sale of spontaneously grown trees. (d) Income from dairy farming.

(e) Purchase of standing crop.

Certain income which is not treated as Agricultural Income

Examples
(g) Income of salt produced by flooding the land with sea water.

(h) Royalty income from mines.

(i) Income from butter and cheese making. (j) Receipts from TV serial shooting in farm house is not agriculture income.

Tax on Sale of agricultural land

Before 1970 After 1970 If, by the test above, the land is agricultural land, it will not form part of the definition of a capital asset and so there will be no capital gains on the sale of such land.

Capital Gain on Transfer of Agriculture Land

The agricultural land should have been used for agricultural purposes.
It must have been used either by the assesses or his parents in the two years immediately preceding the date on which the transfer of land took place. The assesses should have purchased another land, which is being used for agricultural purposes, within a period of two years from the date of sale. The new asset purchased should not be sold within a period of three years. If sold, the cost of the new asset will be reduced by the amount of capital gain for the purpose of computing capital gains tax.

Tax after including agricultural income in total income

(a) Income tax is first calculated on the net agricultural income plus the assessors total income from non-agricultural sources.
(b) Income tax is then calculated on the basic exemption slab increased by the assessors net agricultural income. (c) The difference between (a) and (b)

Income from Film Shooting on Agricultural land is not Agricultural Income

Basic Operation

Subsequent Operation
Activity not Involved basic Operation

TAX TABULATOR
(a) Agricultural income (Rs 1,50,000) plus non-agricultural income (Rs 2 lakh) = Rs 3.5 lakh. (b) Income tax on Rs 3.5 lakh = Rs 25,000

(c) Tax on agricultural income of Rs 1,50,000 plus basic exemption of Rs 1.50,000 = Rs15,000.
(d) Tax payable = (b) (c) = Rs 10,000/Singh would have ended up paying Rs 5,000 in taxes on a nonagricultural income of Rs 2 lakh if it wasnt for the provision governing inclusion of agricultural income for rate purposes. Following the inclusion clause, he pays an additional tax of Rs 5,000 on non agricultural income.

Example
I HAVE business income of Rs 1,95,000 and agricultural income of Rs 2,95,000. These figures relate to the assessment year 2009-10. How will my tax liability be computed?

Answer
Agricultural income is exempt under Section 10(1) of the Act so long as the income is derived from agricultural land situated in India. This income is, however, included merely for rate purposes and rebate is allowed on the same in accordance with the Finance Act. No Tax is payable if total Income of an individual do not exceed 1,50,000/- . The inclusion of agricultural income for rate purposes is only required where the total income exceeds Rs 1,50,000.

Solution

PARTICULARS Business Income

RUPEES 1,95,000/-

Agricultural Income
Income Including Agricultural Income Tax on 4,90,000/ Less: Rebate on Agricultural Income (Tax on 2,95,000+ 1,50,000 being basic Exemption) Net Tax Payable Add: Education Cess 3% Total tax Payable

2,95,000
4,90,000 53,000 (44,000) 9,000/270/9,270/-