Tax On Agriculture Income

Tax On Agriculture Income

Agriculture is alleged to be the first occupation in India. it’s usually the sole source of income for the massive rural population in India. The country as an entire is entirely addicted to agriculture for its basic food requirements. the govt. has numerous amount of schemes, policies, and other measures to market growth during this sector – one in every one of them being an exemption to revenue enhancement.

Agricultural income isn’t taxed under Section 10 (1) of the Internal Revenue Code since it isn’t included in a person’s total income. However, the authorities can levy tax on agricultural income if the number exceeds Rs.5,000 p.a.

Agricultural income in India is categorized as a legitimate source of income and includes income from sources that comprise agricultural land, buildings on or associated with agricultural land, and commercial products from agricultural land. This income is taken into account for rate purposes while calculating the tax liability of a person.

What Is Considered As Agricultural Income?

Section 2 (1A) of the revenue enhancement Act details the conditions wherein sources are considered to be generating agricultural income. The section’s definitions mean the subsequent because the sources of agricultural income –

  1. Revenue generated through rent or lease of land in India that’s used for agricultural purposes
  2. Revenue generated through the commercial sale of produce gained from an agricultural land
  3. Revenue generated through the renting or leasing of buildings in and around the agricultural land subject to the subsequent conditions
  1. The cultivator or farmer should have occupied the building, either through rent or revenue
  2. The building is employed as a residential place, storeroom, or outhouse
  3. The agricultural land or the land where the building is found, is being assessed for land revenue or subject to a neighborhood rate assessed

A few exclusions to the current income are going to be as follows –

  1. Revenue from the selling of agriculturally processed products without any real agricultural activity
  2. Revenue from extremely processed produce
  3. Revenue from trees that are sold as timber

Key points to recollect while considering if an income is truly a legitimate agricultural income –

  1. The income should come from a piece of land that already exists.
  2. Income should be from a chunk of land that’s used for agricultural operations
  3. Income should stem from produce achieved after the cultivation of the land
  4. Income will be from a land that’s not under the assessment ownership

Is Agricultural Income Taxable?

Agricultural revenue is free from taxation and is not included in total income by default. Agriculture revenue is exempt from taxation by the federal government. The exemption clause is mentioned under Section 10 (1) of the taxation Act of India.

However, state governments can charge agricultural taxes. As of the most recent amendment, income from agriculture, if within INR 5000 during a twelve-month, won’t be accounted for tax purposes. Anything above that may be taxable as per the applicable rates. As per the finance act, the full liabilities for an individual would come with the agriculture income added to the non-agricultural portion.

Though being exempted from tax through Section 10 (1), tax on agricultural income persists within the state level if the mentioned income exceeds INR 5000 each year and if the entire income excluding agricultural income is over the essential exemption limit. For firms, non-individuals and firms it’s easier to pay the associated tax because the tax is charged at a flat rate on the chargeable income. For salaried individuals, it’d increase the tax they have to pay due to the aggregation of income.

Calculation Of Tax Taking Agricultural Income Into Consideration

Tax On Agriculture Income

In case the agricultural land isn’t falling under the scope of the aforementioned section, one would want to try to do a separate evaluation only for that aspect of tax. If the agricultural income is well within INR 5000, the returns have to be filed through ITR 1, else ITR 2 must be used wherein there’s a separate column for declaring the small print of the income.

The tax calculation done here is by the fact that the income from agricultural sources is falling under Section 2 (1A) of the IT Act.

For all other normal purposes, the tax calculation will involve the subsequent steps:

  1. Including the Agricultural Income – Considering B is the base income of the individual and A is the agricultural income, tax first must be computed on the quantity of B+A. Let’s call this tax T(B+A)
  2. Adding the fundamental tax slab benefit – Depending upon changes within the revenue enhancement rules, the fundamental tax slab might change, except for clarity’s sake, let’s consider that as S. That must be added to the agricultural income and another tax is to be calculated on the number. Let’s call this tax T(S+A)
  3. Income Tax liability – this is often the tax that’s subject to deductions. Thus IT = T(B+A) – T(S+A)

One should remember to aggregate the agricultural income while calculating tax which will allow one to avoid unnecessary extra taxes or interest on taxes.