Income Tax on Agricultural Income

Section 2(1A) of the Income tax Act, 1961 define the teim Agriculatural income which means —

(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;

(b) any income derived from such land by—

(i) agriculture; or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;

(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :

Provided that —

(i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and

(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—

(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year]; or

(B) in any area within the distance, measured aerially,—

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment.

It is clear that Agrucultural income includes the following —

1. Any rent or revenue derived from agricultural land situated in India.
2. Any Income from cultivation of agricultural land.
3. Any income from a process carried on to make the produce marketable.
4. Any income from sale of agricultural produce.
5. Income from agricultural house property.

Test to determine agricultural income

1. Income is derived from land.
2. Land must be used for agricultural propose.
3. Land must be situated in India.

What is Agricultural Income : -

1. Income from sale of replanted tree.
2. Rent received for agricultural land.
3. Income from growing flowers and creepers.
4. Share of profit of a partner from a firm engaged in agricultural operation.
5. Interest on capital received by a partner from a firm engaged in agricultural operations.
6. Income derived from sale of seeds.

What Income is not treated as agricultural Income : -

1. Income from poultry farming.
2. Income from bee hiving.
3. Income from sale of spontaneously grass trees.
4. Income from dairy farming.
5. Purchase of standing crop.
6. Dividend paid by company out of its agricultural income.
7. Income of salt produced by flooding the land with sea water.
8. Royalty income from mines.
9. Income from butter and cheese making.
10. Receipt from TV serial shooting in farm house.

Agricultural Income is added for rate purposes - Although agricultural income is exempt u/s 10(1) of the income tax Act, 1961 but it is added in non-agricultural income for rate purposes when the agricultural income exeeds Rs. 5,000/- in the relevant previous year.

How to calculate tax

1. Step-1- Add agricultural Income and non-agricultural income and calculate tax on it.

2. Step-2 - Add agricultural income with basic exemption limit i.e. 2.00 lac at present and calculate tax on it.

3. Setp-3 - Deduct the tax calculated at step-1 from the tax calculated at step-2. This is the tax payable by you and then add education cess @3% on this amount.

Example- Mr. A has Agricultural Income of Rs.2,00,000/- and Non Agricultural Income of Rs. 10.00 lac in the AY 2013-14. Calculate the amount of tax payable by him.

Although there is no tax on agricultural income but Mr. A is paying tax of Rs 20,000/- just because of his agricultural income otherwise on income of Rs. 10 lac he had to pay Rs. 1,30,000/- as tax.