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Agriculture income

20 March 2021

partnership firm have both agricultural income and non agricultural income then how to calculate income tax explain with one example ?

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5 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24588 Points)
Replied 20 March 2021

Step 1 Compute tax liability on non agricultural income.

Step 2 Compute tax liability on agricultural income+basic exemption limit

Step 3 Difference between step 1- step 2

Step 4 compute net tax liability with cess

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mohammedshafi shaik (60 Points)
Replied 20 March 2021

Not correct

Naveen (student) (334 Points)
Replied 20 March 2021

Agricultural income is fully exempt under Sec 10(1). If an assesse is having both Agri and non Agri income, the above steps as suggested by Mr.Sourav should be followed. It is called partial integration. But such partial integration is applicable only to Individuals, HUF, BOI, AOP i.e only to assesse who have slab rates. So it is not applicable to Partnership firms, companies etc..

So now in ur case, since it is a partnership firm, entire agricultural income is fully exempt. And whatever non agricultural income is fully taxable. If ur agricultural produce is input to ur non agricultural income, u can claim that as expense and finally arrive at non agricultural income. And any share of income given to partners either from Agri or non Agri income is fully exempt. CBDT circular 8 of 2014 clarified that since Agri income is exempt in hands of firm, it doesn't mean that income should be taxable in hands of partners. In both hands, it is exempt.

plse ask if u have further questions

mohammedshafi shaik (60 Points)
Replied 20 March 2021

Partners salary and interest from partnership firm only agricultural activities in firm

Naveen (student) (334 Points)
Replied 20 March 2021

As per Rule 7 of income tax rules, While calculating agricultural income

if we r selling Agri produce in raw form, then sale proceed of that raw form is Agri income.

If it needs further processing to sell then agricultural income is Sale of such processed final product (minus) FMV of raw Agri produce used (minus) such Processing cost is Agricultural income..

So I think we shouldn't allow partner salary and interest as expense. But I'm not sure