Taxation of Agricultural Income
1.Definition of agricultural Income:
- Any rent or revenue derived from agricultural land
- Any Income derived from such land by-
- i) agriculture, or
- ii) processing of agricultural produce, or
- iii) sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him.
- Income derived from building on agricultural land.
- i) The building should be on or in the immediate vicinity of the land
- ii) The building is used by the cultivator or receiver of rent as a dwelling house, or as a store house, or other out building.
- iii) Land should not fall in definition of capital asset i.e. it should be agricultural land situated in rural area.
- Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
2. Section 10: Agricultural income exempt from tax
- Agricultural income is exempt from tax under section 10.
- However, for computation of income tax, agricultural income is aggregated with non-agricultural income if:
- I) Assessee is an individual, HUF, AOP/BOI (taxable at normal rates applicable to an individual).
- II) Assessee has non-agricultural income which exceeds the taxable limit.
- III) Agricultural income exceeds Rs. 5,000.
3. Aggregation of agricultural income with non-agricultural income and computation of income tax
- Step 1: Net agricultural income to be computed as if it were income chargeable to income tax. In case of an assessee engaged in business of growing and manufacturing tea, 60% of income computed is agricultural income.
- Step 2: Aggregate agricultural income and non-agricultural income of assessee and calculate income tax on average income as if such aggregate income were the total income.
- Step3: Increase the net agricultural income by the first slab of income on which tax is charged at nil rate i.e. for AY 2018-19/ 2019-20, income is to be increased by:
- Step 4: Reduce the amount of income tax determined at Step 2 by the amount of income tax determined under Step 3.
- Step 5: Calculate the balance. Add education cess and secondary and higher education cess.
- Step 6: Amount so arrived is the income tax payable by the assessee.
|In case of||Income to be increased by|
|Resident senior citizen (> 60 years, <80 years)||Rs. 3,00,000|
|Super- senior resident individual (80 years or more)||Rs. 5,00,000|
|Any other individual/ Every HUF||Rs. 2,50,000|
Income- tax is calculated on net agricultural income, so increased, as if such income were the total income of the assessee.