Taxability of Agricultural Income In India

According to Section 10 (1) of the Income Tax Act, any income arising from the agricultural lands, buildings, or any other agricultural or commercial product which is less than Rs. 5000 will not be counted in an individual’s total income.

SOURCES OF AGRICULTURAL INCOME

Any income arising through

(i) Rent or lease of Land in India that is used mainly for the agricultural purposes

(ii) Commercial sale of produce gained from agricultural Land

(iii) Renting or leasing of buildings in and around the agricultural land subject to

(a) The person should have possession of the building

(b) The building is used for residential, storeroom, or outhouse

(c) The agricultural land or the land where the building is located should be assessed as per the local rate of land revenue.

Will be considered as agricultural income and can be claimed under section 10(1) of the Income-tax Act,1961.

However agricultural income is chargeable to tax if

(i) Revenue from the sale of processed produced of agricultural activity without involving any actual agricultural activity

(ii) From extremely processed produce

(iii) From trees if it has been sold as timber

ELIGIBILITY FOR CLAIMING EXEMPTION AS AGRICULTURAL INCOME

1. Income should be derived from an existent piece of land situated in India

2. Income should be from a piece of land that is used for agricultural operations.

3. The total Income should not exceed Rs. 5000

PARTLY AGRICULTURAL INCOME

Rules 7 and 8 of Income Tax Rules, 1962 provides products that comprise agricultural and Non- agricultural Income.

They are classified as follows

Income from Growing and manufacturing of Rubber (Rule 7A) – Income from Growing and manufacturing of Rubber comprises 65% of agricultural income and 35% of business income.

Income from growing and manufacturing of coffee (Rule 7B) –

(i) Income from growing and curing of coffee in India comprise 75% agricultural income, 25% of business income

(ii) Income from growing, curing, roasting, and grounding by the seller in India comprised 60% of agricultural income and 40% of business income

Income from growing and manufacturing of tea (Rule 8) – Income from growing and manufacturing of tea comprised 60% business income and 40% agricultural income.

COMPUTATION AND FILING OF AGRICULTURAL INCOME

1. Calculation of gross total Income including agricultural income

2. Computation of net tax liability by applying the applicable slab rates

3. Subtract net tax liability from gross income earned by the assets and adding surcharge ( if applicable) and cess @4%

If agricultural income is below Rs. 5000 ITR1 is to be filed otherwise ITR 2 should be filed.

-Author CA.Vinit Ugale