Agriculture is the main source of income for Indian economy.70% of our population is depended upon agriculture and derives its income from agricultural operations. Agricultural income in India is fully exempted from tax under section 10(1) of Income Tax Act 1961.
Agricultural income is exempted from tax as under Article 270 of Indian Constitution. Central Government cannot impose tax on such income because agriculture is a State subject. Any how, State Governments are free to impose any tax on agricultural income.
Income Tax for Agriculture in India
Agriculture income is fully exempted from tax u/s 10(1) of the Income tax Act 1961.In some cases,income for agriculture is integrated with non-agricultural income to impose tax on agricultural income in an indirect way.
When to integrate income for agriculture with non-agricultural income?
Integration of income for agriculture with non-agricultural is done if the following conditions are fulfilled
- Assessee has both income such as agricultural and nonagricultural.
- Integration is done only for Individuals, Hindu Undivided Families (HUF), Association of Persons, Bodies of Individuals and Artificial Juridical Person.
- Integration is done only if non-agricultural income of all persons mentioned above exceeds exempted limit. Rs.2,50,000 for an Individual, Rs.3,00,000 for Senior Citizens and Rs.5,00,000 for Super Senior Citizen.
- Integration is done only if net income for agriculture of all persons mentioned above exceeds Rs.5,000 in the relevant previous year.
Steps for integration of agricultural income with non-agricultural income
- Net income for agriculture is added with non- agricultural income if conditions given above are fulfilled.
- Tax is calculated on total current rate of tax.
- Net income for agriculture is added with the exempted limit.
- Add education cess @2% + Secondary and Higher Education Cess @ 1% of such tax + Surcharge if any.
- Total is tax payable.
- Tax payable is rounded off to nearest multiple of ten.
Computation of Net Agricultural Income (Rules)
- Compute Agricultural Income [u/s 2(1A)(a)]-as 'Income from other sources' (Sections 56-59).
- Agricultural Income [u/s 2(1A)(b)]-as 'Profits and Gains of business or profession' (Sections 30-43C).
- Compute Agricultural Income [u/s 2(1A)(c)]-as 'Income from House Property' (Sections 23-27).
- Income from Tea grown and manufactured by assessee- 60% of total income of such business, will be treated as Agricultural Income.
- Assessee, if member of AOP or BOI, in the previous year has non-agricultural within the exemption limits but has Agricultural Income. Such Agricultural Income or share of loss of such AOP or BOI will be construed as Agricultural Income.
- Only in case of individual assessee, loss in Agriculture can be set-off against profit from Agriculture.
- Any levy imposed on Agricultural Income by the State Government is allowed as deduction.
- Unabsorbed loss from Agricultural Operations will be set-off against profit from agricultural operations in chronological order.
- In case of loss from Agricultural operations from various sources, such loss will be disregarded.
- The Net Agricultural Income of the assessee will be rounded off to the nearest multiple of Rs.10.
The Government has found an indirect way, to make sure you pay tax on your agricultural income. This is a concept known as partial integration of taxes.
The two conditions are net agricultural income should exceed INR 5,000 a year and non agricultural income should exceed the basic tax exemption limit.