Taxability of Agricultural income post amendment by Finance (No.2) Act, 2014
Agricultural income is exempt from Income Tax under section 10(1) of the Income Tax Act, 1961. However, its included, for rate purposes, in computing the Income Tax Liability if following two conditions are cumulatively satisfied:
- Net Agricultural income exceeds INR 5,000/- for P.Y. 2014-15, and
- Total income, excluding net Agricultural income, exceeds INR 2,50,000/-.
Kindly note that the aforementioned condition at Serial No.2 shall change to INR 3,00,000/- in case if the Assessee is an individual who falls in the age bracket of 60 to 79 Years during the P.Y. 2014-15, and to INR 5,00,000/- in case if the Assessee is an individual who is of the age of 80 Years or more during the P.Y. 2014-15.
Once the aforementioned conditions are satisfied then we shall compute the Tax liability in the following manner:
- First, include the Agricultural income while computing your income Tax liability. Example – Let us say that an Individual Assessee has a Total income of INR 7,50,000/- (excluding Agricultural income) and a Net Agricultural income of INR 100,000/-. Then, per this step, Tax shall be computed on INR 7,50,000/- + INR 1,00,000/- = INR 8,50,000/-. Thus, income Tax amount as per this step shall be INR 95,000/- for an individual who is below the age of 60 Years during the P.Y. 2014-15.
- Second, add the applicable basic Tax slab benefit, as applicable, to the Net Agricultural income. Thus, per our example mentioned above we shall add INR 2,50,000/- to INR 1,00,000/- as the applicable Tax slab benefit available to an individual below 60 Years of age is INR 2,50,000/-. Now we will compute income Tax on INR 3,50,000/- (Tax slab benefit 2,50,000 + Net Agricultural income 1,00,000). The amount of Tax shall be INR 10,000/-.
- Third, subtract the Tax computed in Second step from the Tax computed in First step = INR 85,000/-. Thus, this is the income Tax liability subject to deductions, Education cess etc., as applicable.
The aforementioned treatment of Agricultural income has been illustrated subject to Finance (No.2) Act, 2014.
(Author Details- CA Sahil Jolly – Jolly & Co. Chartered Accountants, Contact: +91-9999830077, Email : firstname.lastname@example.org)
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