Exemption on Agricultural Income
Agricultural income in India is categorised as a valid source of income and basically includes income from sources that comprise agricultural land, buildings on or related to an agricultural land and commercial produce from an agricultural land. This income is considered for rate purposes while calculating the income tax liability of an individual.
What is considered as Agricultural Income?
Section 2 (1A) of the Income tax Act details out the conditions wherein sources can be considered to be generating agricultural income. The section’s definitions basically point out the following as the sources for agricultural income –
- Revenue generated through rent or lease of a land in India that is used for agricultural purposes
- Revenue generated through the commercial sale of produce gained from an agricultural land
- Revenue generated through the renting or leasing of buildings in and around the agricultural land subject to the following conditions
- The cultivator or farmer should have occupied the building, either through rent or revenue
- The building is used as a residential place, storeroom or outhouse
- The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed
A few exclusions to this income will be as follows –
- Revenue from sale of processed produce of agricultural nature without actual agricultural activity
- Revenue from extremely processed produce
- Revenue from trees that have been sold as timber
Key points to remember while considering if an income is actually a valid agricultural income –
- Income should be from an existent piece of land
- Income should be from a piece of land that is used for agricultural operations
- Income should stem from produce achieved after cultivation of the land
- Income can be from a land that is not under the assessee’s ownership
Is Agricultural Income Taxable?
By default, agricultural income is exempted from taxation and not included under total income. The Central Government can’t impose or levy tax on agricultural income. The exemption clause is mentioned under Section 10 (1) of the Income Tax Act of India.
In any case, state governments can charge agrarian expense. As of the most recent alteration, salary from agribusiness, if inside INR 5000 out of a money related year, won’t be represented expense purposes. Anything over that will be assessable according to the material rates. According to the fund demonstration, the aggregate expense risk for a man would incorporate the horticulture pay added to the non-rural bit.
Though being exempted from tax through Section 10 (1), tax on agricultural income still persists in the state level if the mentioned income exceeds INR 5000 per year and if the total income excluding agricultural income is more than the basic exemption limit. For firms, non-individuals and companies it is easier to pay the associated tax as the tax is charged at a flat rate on the chargeable income. For salaried individuals, it might increase the tax they need to pay because of the aggregation of income.
Calculation of Tax taking Agricultural Income into Account:
In the event that the agricultural land isn’t falling under the extent of the previously mentioned area, one would need to complete a different assessment only for that part of duty. On the off chance that the horticultural wage is well inside INR 5000, the profits should be recorded through ITR 1, else ITR 2 needs to be utilized wherein there is a different section for pronouncing the subtle elements of the pay.
The assessment figuring done here is as per the way that the wage from agrarian sources is falling under Section 2 (1A) of the IT Act.
For all other normal purposes, the tax calculation will involve the following steps:
- Including the Agricultural Income – Considering B is the base income of the individual and A is the agricultural income, tax first needs to be computed on the amount of B+A. Let’s call this tax as T(B+A)
- Adding the basic tax slab benefit – Depending upon changes in the Income Tax rules, the basic tax slab might change, but for clarity’s sake, let’s consider that as S. That needs to be added to the agricultural income and another tax is be calculated on the amount. Let’s call this tax as T(S+A)
- Income Tax liability – This is the tax that is subject to deductions. Thus IT = T(B+A) – T(S+A)
One should always remember to aggregate the agricultural income while calculating tax since that can allow one to avoid unnecessary extra taxes or interest on taxes.
Should agricultural income be taxed
Agricultural income is tax free in India. This benefit is reportedly being misused by wealthy farmers with large incomes to evade taxes.
RESEARCH BY REACHING OUT TO EXPERTS –
Taxation Law Faculty, Banaras Hindu University
“The exemption for agricultural incomes is benefiting rich farmers and agricultural companies, which was not the intended outcome.”
It’s an ideal opportunity to discuss the tax collection of rich agriculturists, the individuals who possess in excess of 4 hectares of land. They frame only 4% of the aggregate agrarian family units however hold more than 20% of rural wage.
The most recent National Sample Survey 70th round uncovered that 70% of farming family units in India have minor property (under 1 hectare), and just 0.4% hold more than 10 hectares. Indeed, even the extent of agrarian family units holding 4-10 hectares of land is only 3.7%. Just by burdening the livelihoods of the main 4.1% of agrarian family units, at a normal of 30%, as much as Rs 25,000 crore could be gathered as rural assessment.
The farming segment has since a long time ago went about as an expense shield. As indicated by information put out by the Income Tax Department, in the nine-year time frame from 2006-07 to 2014-15, 2,746, pay assess cases pronounced horticultural salaries over Rs 1 crore. Rural wage pronounced in returns recorded up to November 28, 2014, for exception in the 2014-15 appraisal year, remained at Rs 9,338 crore.
The exception for horticultural wages is profiting medium and vast ranchers and rural organizations, which was not the expected result. The livelihoods of the little and minor ranchers are far underneath the base edge point of confinement of Rs 2.5 lakh of individual pay tax assessment.
Tax Accountant, Lawordo.com
“Amend the definition of ‘agricultural income’ under the tax laws, and impose an appropriate monetary threshold after careful study.”
The facts confirm that horticulture is the principle wellspring of pay for most of the country Indian populace. It is additionally similarly obvious that while the little scale ranchers have been scarcely affected by the duty exceptions under the Indian Income Tax Act, rich agriculturists have received the rewards by mishandling them.
There can be no simple response to the subject of whether horticulture salary ought to be saddled, as it would have extensive ramifications, and also specialized and legitimate difficulties. It’s essential to locate the correct harmony between the saddling rural pay and keeping away from dis-boosting the horticulture segment. The way to exhausting farming pay isn’t simple either. From a Constitutional point of view, just the states are qualified for collect this duty.
The reasonable way to take is revise the meaning of ‘farming wage’ under the assessment laws, and force a proper money related edge after cautious thought and study. Salary that isn’t secured by this changed definition would then be able to be liable to pay assess. This would guarantee that just the high-salary agriculturists go under the domain of tax assessment, and the enthusiasm of little scale and mid-scale ranchers is ensured. Another option is for the parliament to figure a model law fo ..
Taxation Law Student, pursuing PHD in Taxation
“The current focus of the government to bring farmers under the formal system by promoting digital economy is a step in the right direction.”
At 16.6%, India’s general expense to GDP proportion is very low. In this way, there is a steady post for roads to expand the duty accumulation. An ordinary purpose of discussion is whether to impose the farming pay, which keeps on being excluded from assessment. Any proposition to charge horticultural salary will require the assent of the state governments.
Given the political affectability, in any case, the states have been hesitant to assess this division.
The aim to widen the base, check impose shirking and to assess the ‘rich agriculturists’ while saving the poor is very much acknowledged. In any case, we have to consider on the off chance that it bodes well to impose rural wage at the present crossroads. Given that the division is still to a great extent casual and driven with money based exchanges with no record keeping structure set up, actualizing an agribusiness assessment can end up being a noteworthy test.
Then again, the current focal point of the administration to bring agriculturists under the formal framework by advancing computerized economy is a positive development. The choice to charge rural wage ought to be thoroughly considered with satisfactory supporting information about its effect and an intensive comprehension of the different floods of horticultural pay. For the time being, the administration can consider ordering that agriculturalists with livelihoods surpassing a specific edge
Raj Kumar Jindal
Former Director Taxation Laws, Group Arizat
“Given that 83% of the industry is comprised of small and marginal farmers, bringing all agricultural income under the tax net is a bad idea.”
When the Economic Survey 2016 processes the normal pay of a cultivating family in 17 Indian states at Rs 20,000 per year, all things considered 2,500 ranchers carry out suicide consistently, all reeling under a developing obligation load, any discussion of forcing charge on homestead salaries is absolutely a money related wrongdoing.
In a nation where 83% of the cultivating network includes little and negligible ranchers, endeavoring to bring the entirity of farming salary under the expense net is an awful thought. The greatest test today is raising the small salary of agriculturists, and the Prime Minister himself has guaranteed to twofold the equivalent by 2022.
As Parliament was as of late educated, the aggregate extraordinary credit for the whole cultivating network remains at Rs 12.60 lakh crore. As of now, Uttar Pradesh, Maharashtra and Punjab have started the way toward deferring agriculturist advances, and the weight is developing for advance waivers in Rajasthan, Tamil Nadu, Karnataka and Maharashtra. The normal pay of cultivating family is not as much as Rs 1,700 every month into equal parts the nation.
The National Sample Survey Organization figures the normal salary from horticulture to associate with Rs 3,000 per month. Would this be able to be viewed as an assessable wage? Before the great contracted bookkeepers’ anteroom develops the weight for bringing horticultural earnings under the assessment net, the momentous job that needs to be done is to furnish agriculturists with an assessable wage.
1. The exemption for agricultural incomes is benefiting rich farmers and agricultural companies, which was not the intended outcome.
2. Amend the definition of ‘agricultural income’ under the tax laws, and impose an appropriate monetary threshold after careful study.
3. The current focus of the government to bring farmers under the formal system by promoting digital economy is a step in the right direction.
4. Given that 83% of the industry is comprised of small and marginal farmers, bringing all agricultural income under the tax net is a bad idea.
Rs 3,000 a month. Can this be considered a taxable income? Before the powerful chartered accountants’ lobby builds up the pressure for bringing agricultural incomes under the tax net, the monumental task at hand is to provide farmers with a taxable income.
Written By – Pukhraj Malhotra, Amity Law School Noida