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Agriculture is said to be the primary occupation in India. It is usually the only source of income for the large rural population in India. The country as a whole is entirely dependent on agriculture for its basic food requirements. The government has numerous amount of schemes, policies and other measures to promote growth in this sector – one of them being an exemption to income tax.
It may seem like the fact of exemption to income tax is all that we need to know when it comes to the taxation of agricultural income but there is more to it. Let us take a look at the provisions of the law in this regard.
The Income-tax Act has its own definition of agricultural income which constitutes the following 3 main activities:
I. Rent or revenue earned from agricultural land situated in India:
Rent is the consideration for the right to use the land. The scope of the possible sources of income that can be derived from land is many. An example would be fees received for renewal of grant of land on lease. However, revenue from land does not include consideration received on the sale of land. Income derived from agricultural land in the following ways:
II.Income derived from agricultural land in the following ways:
The Income Tax has prescribed rules to make this bifurcation regarding agricultural and non-agricultural produce for products like tea, coffee, rubber, etc
III. Income derived from farm building required for agricultural operations:
The conditions for classifying income derived from farm building as agricultural income are as follows:
|Aerial distance from municipality*||Population as per last preceding census.|
|Within 2 kms||10,000 to 1,00,000|
|Within 6 kms||1,00,000 to 10,00,000|
|Within 8 kms||> Rs. 10,00,000|
*Municipality includes municipal corporation, notified area committee, town area committee, town committee and cantonment board.
Note: Even where the local population is < 10,000, the land should also not be situated within the jurisdiction of the local municipality or cantonment board.
In cases where the activities have only some distant relation to land like dairy farming, breeding, rearing of livestock, poultry farming, etc. they do not form a part of agriculture income.
As discussed above, agricultural income is exempt from income tax. However, the Income-tax Act has laid down a method to indirectly tax such income. This method or concept may be called the partial integration of agricultural income with non-agricultural income. It aims at taxing the non-agricultural income at higher rates of tax. This method is applicable when the following conditions are met:Applicability:
In simple terms, the non-agricultural income should be greater than the maximum amount not chargeable to tax (as per the slab rates).
No, only agriculture income from land situated in India is exempt from tax.
In the case of growing tea 40% income is taxable as business income and the balance will be exempt as agriculture income.