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Agricultural income is the rent or revenue generated from land which is used for agricultural purposes. It also includes income from agricultural operations by selling agricultural products in the market. Till date, taxes on agricultural income is exempted; however, the state government can levy taxes on the agricultural income. This income is generally considered for rate purposes for calculating the liable income tax for an individual.
In India, Agricultural income is generally classified as a valid source of income. It comprises income from agricultural land and commercial products produced from it, buildings on or related to any agricultural land.
According to section 2(1A), agricultural income is defined as:
However, agricultural income does not include the following:
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All revenue generated from land may not fall under Agricultural income.
Some incomes generated from such activities and are not considered as agricultural income in India are as follows:
Agricultural income is defined u/s 2(1A) and exempted under u/s 10(1) of Income Tax Act
A revenue generated from the following three heads comes under Agricultural Income:
Moreover, the land should not be situated at any of the following locations:
Further, to consider the income generated as an agricultural income, you should keep in mind the following key points:
Under Section 10(1) of the Income-tax Act, 1961 deals with a tax on agricultural income. All agricultural incomes are not exempted under the Income tax act. Under this constitution, only the state government has the power to levy tax on agricultural income. Central government excludes agricultural income from the purview of Central Income Tax.
As per the latest update, if the income from agriculture is less than Rs. 5,000 then the income from agriculture will not be accounted for tax purposes. And if the revenue generated from agriculture is more than the minimum limit then the agriculture income will be taxable as per the applicable tax or Tax Deducted at Source (TDS) rates. According to the finance act, the total tax liability of an individual will include agricultural income added to the non-agricultural portion. If the income earned in the financial year is only from agricultural, then it is not required to file income tax return. And the agricultural losses can be set off against the agricultural profits for the next 8 years.
Income from agriculture is exempted from tax under section 10(1) of the Income Tax Act, 1961.
The following conditions should be satisfied to calculate tax liability:
If you are an individual with agricultural income you should keep in mind the following rules while calculating your tax:
Money laundering is the process by which money earned through crime and corruption is converted into “legitimate” Assets. In India, big businessmen and politicians launder their money using income from agricultural land.
Agricultural income has become a source for money laundering as it is exempted from taxes. The country is losing billions in revenues because of money laundering. Politicians purchase agricultural land at a very nominal rate around INR 20,000 per Acre in central areas of the country. And during the agricultural season (kharif and Rabi) they allow farmers to grow the crops on their land. Sugarcane and cotton are grown in kharif season while groundnuts are grown in Rabi season. Majority of farmers in India are not educated so they don’t maintain detailed records and this is in turn misused by politicians and businessmen. As they give the opportunity to pass off unaccounted cash income as agricultural income.
Businessmen set off their business profits against fictitious expenses. These fictitious expenses could be used for billing for travel; eating and can reimburse it later. After reimbursement, it is transferred into their bank account and at the time of computation of tax, they show the receipts of agricultural produce to show that as agricultural income, which is not taxable in India.
Further, these large number of agricultural land purchased by the politicians at very cheap cost are sold at very high rate. Sale of agricultural land is not considered as “Capital Asset” and hence no tax is imposed on the sale of land and huge profits are earned on the sale of land by the politicians.
Agricultural income is exempted from income tax under section 10(1) of the IT Act. So far, no law has been agreed on taxing agricultural income. However, many people believe that agricultural income should be taxed, quoting that since historical period, the tax from agricultural revenue is a major contribution to the society. Though the government of Modi had not yet approved the advice on the same, many debates and discussions are going on.
Some officials want that tax on agricultural income should be implemented. They are supporting this because they want no distinction between rural and urban. The impact of the tax on rural income should be same as that of urban income. However, taxing agricultural income requires an amendment in income tax act, as central government cannot charge tax on income from agriculture.
The government may avoid, taxing the entire agricultural income, as they are planning to exempt agricultural income from farmers who are having land holding up to five acres. They are also planning to exempt income arising from the cultivation of rice, wheat, and vegetables. The main objective behind this is to tax the agricultural income of rich farmers.
Taxing agricultural income will be beneficial in following ways:
Agricultural income is the income earned from land which is used for agricultural purpose. As per section 10(1), agricultural income is exempted from tax. But all incomes from agriculture are not exempted from tax.
Some key points of agricultural income that an individual need to keep in mind are as follows: