In this article, Yash Tandon discusses the taxability of Agriculture Income. Procedure on how to file the ITR for your agricultural income.

What is Agriculture Income?

Agricultural income in India is categorized as a valid source and essentially incorporates income from sources that include farming area, structures on or identified with a rural land and business deliver from a horticultural land. This income is considered for rate purposes while ascertaining the income tax liability of an individual.

Agriculture Income – Income Tax Act, 1961

Section 2 (1A) of the Income Tax Act, 1961[1] details out the conditions wherein sources can be considered to be generating agricultural income. The following are the sources of agricultural income –

• Revenue generated through rent or lease of a land in India that is used for agricultural purposes, subject to some conditions which are-:
  • The land ought to either be evaluated to arrive income in India or be liable to a nearby rate surveyed and gathered by officers of the Government.
  • In the event that for example the land isn’t liable to neighbourhood rate, at that point the land ought not to be arranged inside the locale of a region or a cantonment board, and which has a populace of more than ten thousand, or it ought not to be arranged:
  • Not being more than 2kms. from the neighbourhood furthest reaches of any region or cantonment board and which has a populace of more than 10,000 yet not surpassing 1,00,000; or
  • Not being more than 6kms. from the neighbourhood furthest reaches of any district or cantonment board and which has a populace of more than 1,00,000 yet not surpassing 10,00,000; or
  • Not being more than 8kms. from the nearby furthest reaches of any region or cantonment board and which has a populace of more than 10,00,000[2].
• 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 as follows-:

• • 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.

What are Non- Agriculture Income?

The below-mentioned list draws exception to that revenue or income which is generated by doing agriculture work, but they are “non-agriculture income. They are as follows-:

• Revenue from the sale of processed products of agricultural nature without actual agricultural activity.
• Revenue from extremely processed products.
• Revenue from trees that have been sold as timber.
• Income from poultry farming.
• Income from bee hiving.
• Income from sale of spontaneously grown trees.
• Income from dairy farming.
• Purchase of standing crop.
• Dividend paid by a company out of its agriculture income.

There are certain points which should be kept in mind to evaluate whether the particular agriculture income is valid. These are as follows-:

• Income should be from an existing piece of land.
• Income should be from a piece of land that is used for agricultural operations.
• Income should stem from products achieved after cultivation of the land.
• Income can be from a land that is not under the assessee’s ownership.

Whether the above mentioned Agriculture Income is Taxable or Not?

Under Section 10(1) of the Income Tax Act, 1961[3], the income earned from agricultural land is exempted from taxes. Before 1970, profit on the sale or transfer of all agricultural land was considered rent or revenue derived from the land. Such profit was, therefore, tax-exempt as agricultural income. An agricultural land does not form part of the definition of a capital asset and hence, there will be no capital gains on the sale of such land.

Any other land not forming part of the above will be a capital asset and sale of the same shall attract tax on capital gains subject to Section 54B, which is explained below.

Section 54B of the Income Tax Act, 1961

Section 54B gives relief to a taxpayer who sells his agricultural land and acquires another agricultural land from the sale proceeds.

Conditions to be fulfilled to guarantee the advantage of this Section:

• The assessee must be an individual or a HUF(Amount received by a member of the HUF from the income of the HUF, or in case of impartible estate out of the income of family estate [Section 10(2)]. As per section 10(2), the amount received out of family income, or in case of an impartible estate, or the amount received out of the income of family estate by any member of such HUF is exempt from tax).
• The agrarian land ought to have been utilized for rural purposes. It might be a long haul resource or a fleeting resource.
• It has probably been utilized either by the assessee or his folks for agrarian purposes in at least two years instantly preceding the date on which the exchange of land occurred.
• The assessee ought to have bought another land, which is being utilized for agrarian purposes, inside a time of two years from the date of the offer[4].

Whether all Agricultural Land is Exempted from Tax Liability?

No, all agricultural land is not exempted. Agriculture income is included while computation, for the limited purpose of determining the tax rate, in computing the income tax liability if the net agricultural income exceeds Rs 5,000 for, say, Financial Year 2015 and total income, excluding net agricultural income, exceeds applicable basic income exemption of Rs 2,50,000. Currently, the basic income exemption for an individual of age between 60 and 80 years is Rs 3 lakh for Financial Year 2015 and the basic exemption for an individual above 80 years of age is Rs 5 lakh[5].

Whether all the Agriculture Products come under the tax exemption?

Any preparing done on Agricultural create to make it marketable is a piece of agricultural operations and such sum recuperated will be dealt with as agriculture income only. Say for instance threshing of wheat, mustard, and so forth is a piece of agriculture operations and the sum recuperated will be dealt with as farming salary just regardless of preparing happens on the land itself or some other place.

Be that as it may, in specific cases like on account of tea, coffee, sugar stick where a noteworthy preparing (change of exceptional nature of the item) is being done, at that point some piece of the handled deliver (tea, coffee, and sugar) is taxed as non-farming pay and rest is absolved as rural salary.

Whether income earned from export of agricultural produce is exempt from income tax?

The conditions for considering the income as agricultural in nature have to be satisfied if the agricultural produce has to be exempt from income tax.

NOTE- Middlemen dealing in trade of agricultural produce are generally not entitled to exemption due to lack of satisfaction of the conditions.

How to file Agriculture Income Tax? How it is computed?

Although Agriculture income is completely excluded from tax, the Finance Act, 1973, introduced a scheme whereby agriculture income is incorporated with non-horticultural pay on account of non-corporate assessees who are at risk to pay tax at indicated section rates. The procedure for money impose calculation for such surveys is as per the following:

• Income tax is first ascertained on the net horticultural salary in addition to the assessee’s aggregate pay from non-farming sources.
• The tax is then ascertained on the fundamental exception section expanded by the assessee’s net agrarian pay.
• The contrast amongst (a) and (b) is the measure of expense payable by the assessee.

NOTE-The previously mentioned procedure of calculation is, be that as it may, took after just if the assessee’s non-horticultural pay is an abundance of the essential exclusion section.

This video might help you in understanding the procedural intricacies involved in filing agricultural tax.

Conclusion

Clearly, notwithstanding agriculture income being charge absolved, assessees must be careful while managing such pay. They should ensure that their total rural salary with their aggregate pay has to stay away from intrigue instalments and conceivable punishments for camouflage of pay. Assessees should likewise keep up dependable records to furnish the duty specialists with verification of responsibility for land and confirmation of having earned farming pay.

There is sufficient degree of the exhausting wage from exercises which are non-agriculture in nature. Actually, it is outstanding that agriculturists themselves don’t have the assessable wage, considering the way that when it is separated among relatives who are engaged with farming operations, every last one of them would include wage inside as far as possible. In any case, there are a huge number of go-betweens like wholesalers, retailers, merchants, and so forth who procure significant salary from exchanging agrarian deliver and additionally natural products, blooms, and so forth. Such salary or benefits are completely assessable under the present law and, in this manner, if coordinated endeavors are made by the Tax Department to recuperate impose from them, the requirement for broadening the expense base to rope in agriculturists and ranchers, would be eliminated.

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References

[1] http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx(last visited on Dec 14,2017).

[2] https://taxguru.in/income-tax/income-tax-treatment-taxability-of-agricultural-income.html(last visited on Dec 14,2017).

[3] http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx(last visited on Dec 14,2017).

[4] http://www.incometaxindia.gov.in/Tutorials/17.%20Exemption%20under%2054B.pdf(last visited on Dec 14, 2017).

[5] https://economictimes.indiatimes.com/wealth/tax/here-are-nine-incomes-you-need-not-pay-tax-on/articleshow/47538791.cms(last visited on Dec 14,2017).