What is Agricultural Income and is it Taxable in India?
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What Is Defined As Agricultural Income In India?
- Any rent received from land which is used for agricultural purposes.
- Agricultural operations which mainly include processing of farm produce which is then sold in the market as agricultural produce.
- Income obtained from a farmhouse which is in proximity to the land you own. and which may be used as a storehouse or a dwelling unit.
- It is very necessary that land exists and it is used for agricultural operations. Agricultural operations means the seeds should be planted and effort made to sprout seeds from the land and cultivate the land.
- Let us consider that you receive rental income from your land..It is very necessary that agricultural activities are carried out on this land. Only then can you state that rental income obtained from your land is agricultural income.
- The income obtained from sale of replanted trees and growing flowers and creepers
- Income obtained from the sale of seeds.
- The profits received from your partner who is engaged in agricultural produce or activities.
- Income earned from nursery operations such as selling of plants and flowers.
What Is Not Considered As Agricultural Income In India?
- Let us consider that you have poultry or manage bee hives. This is not considered as agricultural income in India.
- If you have income from dairy and spontaneously grown trees.
- Income earned by producing salt by flooding the land with sea water.
- Royalty income from mines and purchase of standing crop.
- Income from butter and cottage cheese making.
- TV Serial shooting in farmhouses is not considered as agricultural Income and is taxed.
- Land located near a busy thoroughfare surrounded by industrial areas or estates and commercial buildings and vegetables are grown on this land then this land does not constitute as agricultural land and income is taxed.
Is This Agricultural Income Taxed In India:
- The income earned from agricultural land is exempt from taxes under Section 10(1) of the Income Tax Act 1961.
- Agricultural income is computed in the same manner as Business income.
- If we suffer losses in agriculture these losses can be set off against the agricultural profits for the next 8 years.
- If the income you earn is only from agriculture then it is fully tax exempt. For example if you earn 4 Lakhs per annum the income you earn is fully tax exempt. There is no need to file Income tax returns.
- If you have agricultural income along with other sources of income you would have to pay income tax on these other sources of income.
Is All Agricultural Land Exempt From Taxation?
- Let us consider agricultural land located within a cantonment area or within municipal limits and the population of this area is at least 10000.This land may also be within 8 Kms from the municipal and cantonment limit areas. Agricultural land under such conditions is considered as a capital asset. The sale of this asset or agricultural land is subject to capital gains tax. If the agricultural land is outside these limits and does not satisfy the above conditions then there is no capital gains tax on the sale of such agricultural land.
- Let us consider agricultural land is held as an investment and not used for cultivation purposes. The owner intends to sell this land and reap a profit on the appreciation of the cost of this land..Then such land attracts capital gains tax.
How To Compute Tax On The Sum Of Our Agricultural And Non Agricultural income
Let us consider that we have an agricultural income of INR 80000 per annum and non agricultural income is INR 1250000.Then we will calculate income tax for both agricultural and non agricultural income for the Assessment year 2013-2014 or Financial Year 2012-2013 as per the slab shown below.
Income Tax slab rates for male/female less than 60 years : 2012 -2013
|Upto INR 2 Lakhs
|INR 2 Lakhs - INR 5 Lakhs
|INR 5 Lakhs - INR 10 Lakhs
|INR 10 Lakhs and above
Methodology To Calculate Tax On Your Agriculture Income When Paired With Non Agricultural Income
|Non Agricultural +Agricultural income
||229000 (A) (30000+100000+99000) INR 2 Lakhs - INR 5 Lakhs Here we have a range of 200000 to 500000 which gives us 300000 (500000-200000) We then calculate 10% of 300000
Here we have a range of 500000 to 1000000 which gives us 500000 (1000000-500000) We then calculate 20% of 500000
Now we have above 10 Lakhs (1330000-1000000)@30%
|Less Tax on :Agricultural Income + Maximum Amount not Chargeable to Tax
It falls in the range of 2 Lakhs To 5 Lakhs. We know that no tax is charged up to 2 Lakhs. This amount exceeds the given range by 80000 and is taxed at 10%
|Tax Before Ces
|Add 3% Education Cess
Misuse Of Agricultural Land And Its Use In Money Laundering
- You know that very rich businessmen and politicians in our country launder their money using income from agricultural land.
- You cannot own agricultural land unless you and your forefathers have been agriculturists. But nowadays everything can be purchased for a price. Agriculturist Certificates are procured from Talati’s offices to become land owners.
- These politicians obtain land at very cheap rates at around INR 20000 per acre in certain central areas of our country like Chhattisgarh and Jharkhand .Politicians can purchase around 500 acres of agricultural land for about a Crore.
- In India the agricultural season consists of Kharif and the Rabi season .This enables politicians to obtain two incomes in a year. He could grow sugarcane or cotton in the Kharif season in these areas like Uttar Pradesh where black soil abounds. He could cultivate sesame and groundnuts which could be used to produce oil in the Rabi season with the residual moisture and matching soil conditions and irrigation can be done if necessary.
- Farmers need not maintain detailed records in India. This is misused by politicians.
- This gives these politicians and businessmen an opportunity to pass off unaccounted cash income as agricultural income and launder unaccounted money.
- The Businessmen set off their business profits against fictitious expenses. These fictitious expenses could be billing for travel, reimbursement for items and so on. This money is then deposited in a bank account. He then shows sale cash receipts of agricultural produce which can be procured for a price. Bingo! He Has Tax Free Profits.....He has converted his Business profits into agricultural income which is not taxed in India.
- There is also another way in which politicians can launder their ill-gotten money using agricultural land. Politicians purchase huge quantities of agricultural land. That land can be used as a capital asset. The main benefit here is the capital appreciation of this land. The land is bought at dirt cheap prices and is sold at a very high rate .The politicians misuse the gaps in the tax laws which states that if it is agricultural land it is not regarded as a capital asset and any gains accrued on sale of agricultural land is completely exempt from taxes .In this way they make tax free profits and launder away ill gotten gains. It would be good to remember that "A Thief Passes For A Gentleman When Stealing Has Made Him Rich".