ICICI

Agricultural Income and Tax liability

VISHAL BANSAL 
on 17 November 2018


Agricultural Income as per section 10(1) earned by the taxpayer in India is exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act.

As per section 2(1A), agricultural income generally means:


  1. Any revenue from the land which is situated in India and used for agricultural purposes.
  2. Any rent received from the land which is used for agricultural purposes will be treated as agricultural income.
  3. Agricultural operations which mainly include processing of farm produce which is then sold in the market as agricultural produce.
  4. Income obtained from a farmhouse which is in proximity to the land you own and which may be used as a storehouse or a dwelling unit.
  5. It is very necessary that land exists and it is used for agricultural operations. Agricultural operations means the seeds should be planted and effort made to sprout seeds from the land and cultivate the land.
  6. The income obtained from sale of replanted trees and growing flowers and creepers
  7. Income obtained from the sale of seeds.
  8. Income earned from nursery operations such as selling of plants and flowers.
  9. Share of profit of a partner from a firm engaged in agricultural operations.
  10. Interest on capital received by a partner from a firm engaged in agricultural operations.

The following incomes are not Agricultural Income:

  • Income from poultry farming.
  • Income from bee hiving.
  • Income from dairy farming.
  • Purchase of standing crop.
  • Dividend paid by a company out of its agriculture income.
  • Income of salt produced by flooding the land with sea water.
  • Royalty income from mines.
  • Income from butter and cheese making.
  • Receipts from TV serial shooting in farm house.

Taxability of Agricultural income:

Agricultural income is considered for rate purposes while computing the income tax liability, if following two conditions are cumulatively satisfied:

  • Net Agricultural income exceeds Rs. 5,000/- for previous year, and
  • Total income, excluding net Agricultural income, exceeds the basic exemption limit.

If you have only agriculture income: it is fully exempted from Tax

For example:

Suppose you have earned only agricultural income of Rs.3.5 lakhs in a year, this income will be fully tax exempted.

Question: Mr. X, an individual assessee has non agricultural income of Rs. 4,00,000/- and his agricultural income is 1,50,000 for the financial year 2017-18. How to compute tax liability?
Answer: Tax liability for the financial year 2017-18 is as under-

First you have to add your agricultural income and non-agricultural income and compute as under:

First Step: Calculate total tax amount after addition of Agricultural Income + Non Agricultural Income


Non Agricultural Income 4,00,00
Agricultural Income   1,50,000
Total Income 5,50,000

Tax Calculation as per tax slab (assume Mr. X below the age of 60 years)


Up to Rs. 2,50,000 Nil 0
2,50,000 to 4,00,000 5% 12,500
5,00,000 to 5,50,000 20% 10,000
Total Tax Amount (A) 22,500

Second Step: Calculate Tax on Agricultural Income Tax on Agricultural Income i.e. (2,50,000+,1,50,000)


Up to Rs. 2,50,000 Nil 0
2,50,000 to 4,00,000 5% 7,500
Total Tax Amount (B) 7,500

Third Step: Tax liability as under:


Tax liability (A-B) 15,000
AD: Ed. Cess @ 3% 450
Total Tax liability 15,450

Note: If we suffer losses in agriculture these losses can be set off against the agricultural profits for the next 8 years.  


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