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Major Portion of Indian Economy includes 'Agriculture portion'.

What would be the treatment of taxation for agriculture income

Most of the people still including farmers are unaware of the taxation system and ignore to fill income tax return.

Although Agriculture income is exempt under section 10(1) of the Income-tax Act. Income incurred from agriculture up to Rs. 5000 in the financial year is totally exempted and will not be accounted for taxation purpose. The income tax department under section 2(1A) explains the meaning of agriculture income.

Income from agriculture land from farming or rent derived from engaging the land for farming in India. Agriculture income also includes processing of agriculture produces ready to sell in the open market. Agriculture income also includes income derived from the building immediate vicinity with the agriculture land.

How you can predict your income as agriculture income u/s 2(1A)

It is very important to understand whether your income is agriculture income or not.
What are agricultural income and its types

Here is some explanation:

  1. Any agriculture revenue from the land in India.
  2. Any rent received from the land used for agriculture purpose.
  3. Income from a farmhouse which is in relation to the land you own and which may be used as a storehouse or a dwelling unit.
  4. Income from sales of seed.
  5. Income from nursery operation (selling of plants, flowers seeds)
  6. A share of profit of a partner from a firm engaged in agricultural operations.
  7. Any interest earned from the partner company involve in agriculture purpose.

Some of the example, which are not agriculture income

  • Poultry farming, bee hiving, dairy farming is not considered as agriculture income.
  • Income from milk products like butter and cheese making.
  • Income of salt production on the land near the sea.

There is two question still unclear:

  • Is Agricultural Income Taxable
  • How is agriculture income taxable

Under section 2(1A) of the income tax act, income from agriculture is exempted by the central government of India, State government must levy the tax on agriculture income.

If the agriculture income is less then Rs. 5000 in the financial year is exempted.

According to indiamoney.com - When is agricultural income taxed States levy tax on agricultural income if income exceeds Rs 5,000 a year and if total income excluding agricultural income exceeds the basic tax exemption slab.

How to calculate agricultural income

Calculation of agriculture income is very easy and transparent, it holds two scenarios:

  • Net agriculture income must exceed Rs. 5000 in the financial year.
  • Total income excluding agriculture income must exceed the total exemption limit.

Making it simplify:

If your total income is more then Rs. 2,50,000 (for individual less then 60 years). On the other hand, if your total income derived from agriculture income, the income will be fully exempted.

Step by Step explanation of Tax calculation for agriculture income with an example:

I like to share my personal example of my brother in law (Ashutosh), He uses to rent his land for agriculture purpose and also earn from some other sources.

Ashutosh a 27 years old (a young boy), earns from agriculture income Rs. 6,00,000 and from non-agriculture income Rs. 2,40,000, In totality Rs. 8,40,000, agriculture income comes out from letting out agriculture land.

Let s start calculating Ashutosh tax liability:

Step 1: First Add Agriculture income and non-agriculture income.

Step 2: Now its time to check which Tax slab your income belongs.

The Tax slab mentioned above will be changed for senior citizen and super senior citizen.

Ashutosh income (agriculture + non agriculture) is Rs. 8,40,000, as we see clearly it falls under (INR 5,00,001 - INR 10,00,000) Slab.

That means Ashutosh is liable to pay income tax 20 % of Rs. 8,40,000 i.e. Rs. 1,68,000.

Step 3: Now as we all known Ashutosh enjoy tax exemption limit of Rs. 2,50,000 (the limit will be changed according to the age). So we have to add the exemption limit to the pure agriculture income which is Rs. 2,40,000.

Rs. 2,50,000 + Rs. 2,40,000 = Rs. 4,90,000 this amount falls under (INR 2,50,001 - INR 5,00,000) Slab.

Step 4: Is very important, in this step we must deduct the tax exemption amount ( Rs. 2.50 Lakhs) back from the amount derived in step 3, and we have to calculate the tax amount with the same percentage comes out in step 3.

Sounds difficult.

The calculation would be:

10% of (Rs. 4,90,000 - Rs. 2,50,000)
10% of Rs. 2,40,000 = Rs. 24,000

Step 5: Final Step (You have to subtract the amount derived in Step 4 from Step 2)

Ashutosh is finally liable to pay income tax of Rs. 1,68,000 minus Rs. 24,000 i.e. Rs. 1,44,000

Calculation of tax on agricultural income for seniors citizens

Majority of senior citizen above 60 years is generally involved in agriculture income in villages, the above calculation scenario of Ashutosh does not align the calculation for senior citizen because of the Income-tax slab is different for a senior citizen.

I once again share my personal example of my father in law, Ashutosh father (Shri Krishna Narayan Gupta). He is 62 years old (senior citizen) still young earns from agriculture income Rs. 8,50,000 and from non-agriculture income Rs. 2,00,000, In totality Rs. 10,50,000, agriculture income comes out from letting out agriculture land and non-agriculture comes out from letting out the property for rent.

Let's start calculating tax liability of Shri Krishna Narayan:

Step 1: First Add Agriculture income and non-agriculture income.

Step 2: Now its time to check which Tax slab (2018-2019) your income belongs.

The calculation of tax is as similar as calculation of individual less than 60 years old (example above).

Th income (agriculture + non-agriculture) is Rs. 10,50,000, as we see clearly it falls under (Income more than INR 10,00,000) Slab.

The Tax liability comes to be 20 % of Rs. 10,50,000 i.e. Rs. 2,10,000

Step 3: Now as we all known to be a senior citizen, he enjoys tax exemption limit of Rs. 3,00,000. So we have to add the exemption limit to the pure agriculture income which is Rs. 8,50,000.

Rs. 3,00,000 + Rs. 8,50,000 = Rs. 11,50,000 this amount falls under (Income more than INR 10,00,000) Slab.

Step 4: Is very important, in this step we must deduct the tax exemption amount ( Rs. 3 Lks) back from the amount derived in step 3, and we have to calculate the tax amount with the same percentage comes out in step 3.

The calculation would be:

20% of (Rs. 11,50,000 Rs. 3,00,000)
20% of Rs. 8,50,000 = Rs. 1,70,000

Step 5: Final Step (You have to subtract the amount derived in Step 4 from Step 2)

Finally liability to pay income tax of Rs. 1,70,000 minus Rs. 2,10,000 i.e. Rs. (-) 40000

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

The two examples above for individual and senior citizen help you calculate the tax value if your income includes agriculture.

Which ITR do I have to file for income from agriculture

As we have discussed above if your agriculture income is more than Rs. 5,000 along with some other income (salary, business or any other sources), you have to opt of ITR 2.

ITR 2 form consists of 'schedule EI' which was specially designed for the input data of agriculture income.

One should always remember to take benefit of the income tax department instead of misusing the relief to farmers against agriculture income.

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Category Income Tax, Other Articles by - Amit Kumar Bansal 



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