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    Agricultural Income: Agricultural Income: - As Per Sec 10 (1) Agricultural Income Earned by The

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    Nikhil Kasat
    Agricultural income earned in India is exempt from income tax. Agricultural income is defined as income derived from land used for agricultural purposes in India, including rent or revenue from such land, income from agriculture or processes to prepare agricultural produce for market, and income from farm buildings in the vicinity of agricultural land. Key aspects in determining agricultural income are that the land is in India, used for agricultural purposes, and the income is from basic or subsequent agricultural operations. While agricultural income is exempt, a taxpayer's non-agricultural income may be taxed at a higher rate using an indirect method to account for aggregate income levels. Capital gains from the sale of rural agricultural land specified areas are also tax exempt.

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    Agricultural Income: Agricultural Income: - As Per Sec 10 (1) Agricultural Income Earned by The

    Uploaded by

    Nikhil Kasat
    226 views9 pages
    Agricultural income earned in India is exempt from income tax. Agricultural income is defined as income derived from land used for agricultural purposes in India, including rent or revenue from such land, income from agriculture or processes to prepare agricultural produce for market, and income from farm buildings in the vicinity of agricultural land. Key aspects in determining agricultural income are that the land is in India, used for agricultural purposes, and the income is from basic or subsequent agricultural operations. While agricultural income is exempt, a taxpayer's non-agricultural income may be taxed at a higher rate using an indirect method to account for aggregate income levels. Capital gains from the sale of rural agricultural land specified areas are also tax exempt.

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    Agriculture Income

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    Agricultural income earned in India is exempt from income tax. Agricultural income is defined as income derived from land used for agricultural purposes in India, including rent or revenue from such land, income from agriculture or processes to prepare agricultural produce for market, and income from farm buildings in the vicinity of agricultural land. Key aspects in determining agricultural income are that the land is in India, used for agricultural purposes, and the income is from basic or subsequent agricultural operations. While agricultural income is exempt, a taxpayer's non-agricultural income may be taxed at a higher rate using an indirect method to account for aggregate income levels. Capital gains from the sale of rural agricultural land specified areas are also tax exempt.

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    226 views9 pages

    Agricultural Income: Agricultural Income: - As Per Sec 10 (1) Agricultural Income Earned by The

    Uploaded by

    Nikhil Kasat
    Agricultural income earned in India is exempt from income tax. Agricultural income is defined as income derived from land used for agricultural purposes in India, including rent or revenue from such land, income from agriculture or processes to prepare agricultural produce for market, and income from farm buildings in the vicinity of agricultural land. Key aspects in determining agricultural income are that the land is in India, used for agricultural purposes, and the income is from basic or subsequent agricultural operations. While agricultural income is exempt, a taxpayer's non-agricultural income may be taxed at a higher rate using an indirect method to account for aggregate income levels. Capital gains from the sale of rural agricultural land specified areas are also tax exempt.

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    AGRICULTURAL INCOME

    Agricultural Income: - As per Sec 10(1) Agricultural income earned by the


    tax payer in India is exempt from paying Tax.

    What is Agricultural Income?


    Sec 2(1A) defines agriculture income to mean:-

    Any rent or revenue derived from land which is situated in India and is
    used for agricultural purposes

    Any income derived from such land by agriculture or by the


    process employed to render the produce fit for the market or by sale
    of such produce by cultivator or receiver of rent in kind.

    Any income derived from farm building , provided the following


    conditions are satisfied
    i)

    The building is on or in the immediate vicinity of the


    agricultural land

    ii)

    It is occupied by the cultivator or receiver of rent or revenue

    iii)

    It is used as a dwelling house or store house or out house &

    iv)

    The land is assessed to land revenue in India or it is not situated


    within the specified area.

    Analyzing Sec 2(1A)


    -Income of cultivators those who have land
    -Could be received in cash or kind

    Ways in which agricultural income is derived


    -

    rent or revenue derived from land situated in India

    used for agricultural purpose

    income derived from agriculture or

    performance of process ordinarily employed to make the product fit to


    the market

    income derived from farm building required for agricultural operations

    Key aspects to determine Agricultural income: Land should be in India


    Agricultural & agricultural purposes
    Basic & subsequent operations
    Products should be for consumption or trade &commerce
    Owner ship of land is not essential

    Process ordinarily employed


    -

    render the product fit to be taken the market

    It may be manual or mechanical

    Conditions to be satisfied for farm house income


    -

    should be on or immediate vicinity of agriculture land

    should be occupied by receiver of rent/revenue or cultivator

    used as dwelling /store/farm house

    assessed land revenue or subject to local cess

    If not assessed means not situated within the specified area.

    Why agriculture not taxable?


    In India, constitution is the parent law. All other laws should be enacted without
    exceeding the frame work & norms laid down by the constitution. Under the
    Constitution the Parliament does not have power to levy tax on agricultural
    income. Only state government has power to tax agricultural income.

    INDIRECT METHOD OF TAXING AGRICULTURAL


    INCOME
    Although Agricultural income is exempt from tax u/s.10(1), but included in for
    the determining the rate at which the non agricultural income is chargeable to
    tax, with a view to increase the tax payable in respect of agricultural income.
    Indirect method Applicable only in case of Individual, HUF, unregistered firm,
    AOP/BOI, because in case of remaining persons they taxed at maximum
    marginal rate.

    Indirect Method of taxing not applicable if : Net agricultural not exceeds RS 5000

    Non agricultural income should not exceed the maximum amount not
    chargeable to tax

    Ex: Mr X aged 40, had total income Rs 4,00,000 & agriculture income Rs
    500,000 .computing tax liability.
    Ans) Agricultural income is exempt from tax u/s.10(1) so, 400,000 not included
    Normally slab exemption Rs 2,50,000.
    4,00,000-2,50,000=150,000*10%=15,000
    Calculated by ignoring cess &Rebate u/s 87A
    Calculating tax using indirect method
    Particulars
    Agricultural income
    Non Agricultural income (Total income)
    Aggregation of (a) &(b)
    Tax payable on (c)
    Aggregation of (a)& basic exemption limit
    Tax payable on (e)
    Net tax payable (d)- (f)

    Reference
    (a)
    (b)
    (c)
    (d)
    (e)
    (f)
    (g)

    RS
    5,00,000
    4,00,000
    9,00,000
    1,05,000
    7,50,000
    75,000
    30,000

    Impact of Indirect method: - Non Agricultural income taxable at

    higher rate. In this transaction tax payable increased by RS 15,000 (30,000-

    15,000)

    Income from nurseries


    Explanation 3 to Section 2(1A)
    Income derived from saplings/seedlings grown in Nursery should
    be considered as agricultural Income.

    Incomes which are not treated as Agriculture Income(no


    direct connection with land):

    Income from poultry farming.


    Income from bee hiving.
    Income from sale of spontaneously grown trees.
    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

    Logic behind this was non agricultural income does not become
    agricultural income just because there is an indirect connection between
    land.

    Incomes which are treated as Agriculture Income(Direct


    connection with land):

    Income from sale of replanted trees.


    Rent received for agricultural land.
    Income from growing flowers and creepers.
    Share of profit of a partner from a firm engaged in agricultural operations.

    Interest on capital received by a partner from a firm engaged in


    agricultural operations.
    Income derived from sale of seeds.

    Aportionment cases:
    Agricultural produce subjected to manufacturing process
    Profit on sale has agriculture& business income

    Apportionment Income from grow &


    manufacturing any product other than tea RULE
    7:Scenario 1:
    Possible to sell the Agricultural Produce in raw stage or after application
    of ordinary process -Average price it has been sold at

    Scenario 2:
    Not possible to sell the Agricultural Produce in raw stage or after
    application of ordinary process then -Market value is aggregate of

    Expense of cultivation

    Land revenue/rent

    Reasonable profit

    Rules regarding apportionment


    Rule

    Produce

    7A

    Rubber centrifuged latex or conex or latex based crepes


    or brown crepes or technically specified block rubber
    Coffee grown & cured

    7B(1)
    7B(1A
    Coffee grown, cured, roasted& grounded
    )
    8

    Tea grown &manufactured

    Agriculture Business
    income
    income
    65%
    35%

    75%

    25%

    60%

    40%

    60%

    40%

    Tax on sale of rural agricultural land:


    An rural agricultural land in specified area does not form part of the
    definition of a capital asset u/s 2(14)and hence, there will be no capital gains
    on the sale of such land.
    Any other land not forming part of the above will be a capital asset and sale of
    the same shall attract tax on capital gains subject to Section 54B, which is
    explained below.

    Section 54B: Capital gain on transfer of land used for


    agricultural purposes not to be charged in certain cases
    Section 54B gives relief to a taxpayer who sells his agricultural land and
    acquires another agricultural land from the sale proceeds.
    Conditions to be satisfied to claim the benefit of this Section:
    a. The assessed must be an individual or a HUF.
    b. The agricultural land should have been used for agricultural purposes. It
    may be a long term asset or a short term asset.
    c. It must have been used either by the assessee or his parents for agricultural
    purposes in atleast two years immediately preceding the date on which the
    transfer of land took place.
    d. The assessee should have purchased another land, which is being used for
    agricultural purposes, within a period of two years from the date of sale.

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