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Agricultural Income

Arka Bose (None) (313 Points)

19 December 2009

Hi,

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax. However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner, which results into "no" tax on agricultural income but an increased income tax on the other income.

I did get this point,so its ok,but my question is that whether any LIP premium paid from agro income on own life is deductible u/s 80 C or not

This is because even though there are no tax imposed on the agro income,but it is for that agro income only that my tax liability increases (on the non agro incomes).

Thanks in Advance

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14 Replies

Deeps (Article Assisstant) (2485 Points)
Replied 19 December 2009

Agricultural income [Section 10(1)] – (i) Section 10(1) provides that agricultural income is not to be included in the total income of the assessee. The reason for totallyexempting agricultural income from the scope of central income tax is that under the Constitution, the Parliament has no power to levy a tax on agricultural income.
(ii) Indirect way of taxing agricultural income - However, since 1973, a method has been found out to levy tax on agricultural income in an indirect way. This concept is known as partial integration of taxes. It is applicable to individuals, HUF, unregistered firms, AOP, BOI and artificial persons. Two conditions which need to satisfied for partial integration are:
1. The net agricultural income should exceed Rs.5,000 p.a., and
2. Non-agricultural income should exceed the maximum amount not chargeable to tax.

Therefore, if an assessee has only agricultural income and no non- agricultural income or non- agricultural income does not exceed the basic exemption limit, then there is no concept of aggregation. If an assessee has only agricultural income then Chapter VI A deductions are also not applicable as the whole income is exempt from tax.

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Arka Bose (None) (313 Points)
Replied 19 December 2009

if the income (non agro) exceeds the basic exemption limit and the agro income is above Rs 5000,then are deductions possible?

PLEASE NOTE: I am talking about those deduction u/s 80 C for example LIP paid .......

LIP paid is certainly a deduction u/s 80 C

but what happens if this same LIP premium is paid out of agro income?

is it deducted? If yes,then why? coz agro income is actually not taxed,so deducting LIP from agro income gives rise to double benefit.

Similarly if they are not allowed to be deducted,then actually the tax liability increses due to the agro income,even though the agro income itself is actually not taxed!

i hope you understand my question..thank you

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 19 December 2009

Arka...

1. Tax liability will always increase due to agricultural income if u hv non-agricultural income above basic exemption limit.

2. If u hv both type of income then u can claim deduction u/s 80C upto the taxable gross total income (non-agricultural income). for example : Agri Income = 100,000 & non-agri income = 50,000 & LIP = 70,000 then u can claim deduction u/s 80C of Rs. 50,000 which were deemed to be paid out of non-agricultural income and balance 20,000 can not be claimed as deduction. So, in nut-shell, there is no deduction available if expenses are pad out of agricultural income.

hope u get ur answer. if u hv ny doubt, den do revert me wid ur query..

Adarsh

Arka Bose (None) (313 Points)
Replied 20 December 2009

Adarsh thanks you very much for that

Now my doubts are all clear thank you

i know that tax liability will certainly increase(i already stated that before0 but my doubt was since this increment of the tax liability was due to the agricultural income,whether we could claim any expenses paid out of agricultural income...

thanks for explaining

Ansari (ca final) (444 Points)
Replied 20 December 2009

Originally posted by : Deepika.R.
	Agricultural income [Section 10(1)] – (i) Section 10(1) provides that agricultural income is not to be included in the total income of the assessee. The reason for totallyexempting agricultural income from the scope of central income tax is that under the Constitution, the Parliament has no power to levy a tax on agricultural income. (ii) Indirect way of taxing agricultural income - However, since 1973, a method has been found out to levy tax on agricultural income in an indirect way. This concept is known as partial integration of taxes. It is applicable to individuals, HUF, unregistered firms, AOP, BOI and artificial persons. Two conditions which need to satisfied for partial integration are: 1. The net agricultural income should exceed Rs.5,000 p.a., and 2. Non-agricultural income should exceed the maximum amount not chargeable to tax. Therefore, if an assessee has only agricultural income and no non- agricultural income or non- agricultural income does not exceed the basic exemption limit, then there is no concept of aggregation. If an assessee has only agricultural income then Chapter VI A deductions are also not applicable as the whole income is exempt from tax.

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Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 20 December 2009

answer

your tax has been increased not your income, so as per section 14A, u can not claim exmpetion for a income which is not assessable

Further

u/s 80C, deduction is allowed even if payment/ contrubution is made out non taxable income or out of loan.

Arka Bose (None) (313 Points)
Replied 20 December 2009

But isn't it like giving double benefit over a same income?

Rajendra Nath Datta (0) (101 Points)
Replied 20 December 2009

If in the qstn given non-agro income Rs 300000 and agro income Rs 150000, and LIC paid Rs 75000 out of agro-income. Then will the assessee get deduction u/s 80C?

CMA RAVI GUPTA (MT in VPL) (493 Points)
Replied 20 December 2009

decuction u/s 80 C is available whether payment is made out of agriculture income or non agricultute income.....................................u/s 80 CCC,80D,80E payment should be made out of income chargeble to tax.

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 20 December 2009

Originally posted by : Rajendra Nath Datta
	If in the qstn given non-agro income Rs 300000 and agro income Rs 150000, and LIC paid Rs 75000 out of agro-income. Then will the assessee get deduction u/s 80C?

yes deduction shall be allowed. The beauty of section 80C is that it emphasis on saving, the section 80C want to say "just contribute and claim deduction" NOT "contribute to save tax"(like in other section where specifically given that deduction e.g. 80D shall be available if and only he contribution made out of taxable income.) Thats why deduction u/s 80C is allowed even u made contribution out of agro income,dividend income or any exempted income even from any loan taken from bank. Now. In way it is double deduction as one is getting exemption and deduction out of same money. But as i said object (here object of sec 80C is to develop habit of saving )is more important from any thing. Further double deduction is justified also as you are showing extra gratuitous nature, i.e. Making contribution out of and exempted income wah bhai wah!! so since ur intention is to save/invest for ur future not to reduce tax, you shall always allowed deduction whereever from it has been madn. Regards

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 20 December 2009

Originally posted by : Rajendra Nath Datta
	If in the qstn given non-agro income Rs 300000 and agro income Rs 150000, and LIC paid Rs 75000 out of agro-income. Then will the assessee get deduction u/s 80C?

Yes, Deduction u/s 80C will definetly be available.. becoz here the LIP amount can also be paid out of non-agri income as he is having non-agri income of Rs.3,00,000 which is more than the LIP amount.. so it will be deemed that the assessee has paid LIP out of non-agri income.. This is purely practical aspect..

Adarsh

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 20 December 2009

Deduction u/s 80C can not be availed over and above the GTI.. so if the assesse is having lower GTI than the LIP paid, then he cannot avail the balance amount as deduction u/s80C.

Rajendra Nath Datta (0) (101 Points)
Replied 20 December 2009

Thanks everybody.

If assessee pay LIC premium out of dividend received from an Indian company (which is fully exempted income)then in that case will he be allowed to claim deduction u/s 80C.

manish (Article Assitant) (358 Points)
Replied 24 December 2009

you cannot claim for deduction u/s 80C, tax has been increased not your income, so as per section 14A, u can not claim exmpetion for a income which is not assessable

Manish