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Agriculture Income and Land Tax in India
  • June 21, 2022
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Agriculture Income and Land Tax in India

India has historically been a farming country. Agriculture was a main focus area in India’s first five-year plan after independence, highlighting its importance to the Indian economy. Subsistence farmers and small farmers make up the majority of those employed in agriculture. As a result, under Section 10(1) of the Indian Income Tax Act, tax on agricultural income is exempt.

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India’s Agricultural Income

Money produced by cultivating land, renting agricultural land, and selling agricultural produce is referred to as agricultural revenue in India. Individuals working in agriculture may take advantage of a variety of incentives and privileges because India is predominantly an agricultural economy. However, not all farmland money is classified as agricultural income.

In India, there are several different types of agricultural income.

The Revenue Tax Act, Section 2(1A), divides agricultural income into three parts.

Rental Income from Agricultural Land

Agricultural revenue includes the rent obtained from renting out agricultural land. In such cases, the tax on farm rent obtained will be exempt and considered agricultural income. The interest component, on the other hand, would not be considered agricultural revenue if the amount of rent owing to the landlord was in arrears and the landlord got interest on the arrears. Interest earned on arrears on agricultural land rental revenue is considered interest income and is subject to taxation.

Revenue from agricultural operations

Agriculture revenue is exempt from taxation since it is derived from agricultural operations. Furthermore, enterprises engaged in agricultural activities are exempt from paying tax on agricultural revenue if the money received is only agrarian income, according to the Income Tax Act.

Assume that a foreign company is doing agricultural activities in the country. Its income will be exempt in that situation, and if a foreign firm pays dividends, the payouts will be subject to shareholders’ tax on agricultural income. Nonetheless, the foreign corporation will be exempt from an extra tax on agricultural revenue.

Profits from Farming

A farm building is any structure in or near an agricultural field that is used for storing agricultural produce or agricultural tools, or that is utilized by the farmer as a dwelling unit. Farm building income is the revenue from a farm building, and the tax on agricultural land income is computed according to the terms of the home property income. The structure must be located in a rural location to be classified as farm building income. It must be built on land that has been classified as agricultural land if it is located in an urban area.

In India, there is an agricultural income tax.

Section 10(1) of the Income Tax Act of 1961 exempts agricultural income from taxation. In addition, the Income-tax Act has provided a method for incurring indirect tax on agricultural income. The partial integration of agricultural and non-agricultural revenue is the term for this method. The purpose of this idea is to raise the tax rate on non-agricultural income. This is applicable if the following requirements are met:

  • Individuals, Hindu Undivided Families (HUFs), BOIs, AOPs, Artificial Juridical Persons, and others should calculate their taxable income based on this concept.
  • This method of taxing agricultural revenue is not allowed for firms, LLPs, companies, co – operative societies, local municipalities, and other non-individual tax assess.
  • Agriculture earns a net profit of more than Rs. 5,000 every year. The following is a list of taxable non-agricultural income:
  • Persons under the age of 60, HUFs, BOIs, AOPs, and other entities with a net worth of more than Rs. 2.50 lakh.
  • Individuals between the ages of 60 and 80 can earn more than Rs. 3 lakh.
  • The sum is larger than Rs. 5 lakh for persons beyond the age of 80.

Agricultural Income Tax Calculation

The table below illustrates how to calculate your tax on agricultural and non-agricultural income:

Revenue

Amount

Agriculture’s Net Revenue

X

Non-agricultural earnings

Y

Maximum Exemption Amount

Z

Taxable Revenue- a

X+Y (Slab rate of income tax)

Taxable earnings -b

X+Z (Slab rate of income tax)

Income Tax Liability in Actual

a-b

 

Consider the Following Points for Taxpayers

The taxpayer must bear the following in mind while classifying tax on agricultural income:

  • If you wish to be classified for agriculture income tax in India, you must have some form of farmland.
  • The taxpayer must utilize the land for agricultural purposes or processes. Agricultural operations are the procedures that are utilized to get a crop to emerge from the ground. “Agricultural income” refers to profits from agricultural operations, such as crop preparation procedures for market sale. Rental or income from agricultural land is tax-free, as is income from the sale of produce received by the farmer or receiver.
  • For land to be used for agricultural purposes, some measure of cultivation is necessary.
  • To be eligible for free tax on agricultural income in the context of rent or revenue, the as if a taxpayer sells processed produce but does not engage in agricultural or processing operations, their income is not considered agricultural.
  • The loss from agriculture activities can be carried forward for up to eight years. The taxpayer can deduct the agricultural loss from his or her agricultural revenue.
  • A taxpayer has the ability to modify agricultural production to the point that the product’s basic essence is alter. The whole money from fruit canning, for example, is not record as agricultural income. In addition, the money will be split evenly between agricultural and manufacturing sources.
  • Timber tree cutting and selling revenue is not classified as agriculture revenue. This is the situation since there are no agricultural operations such as soiling, growing, or harvesting.

Selling the Land as a Way to Pay Taxes on Agriculture Income

If you plan to sell your land, you must pay the following farm income tax in India:

  • Prior to 1970, proceeds from the sale or transfer of all agricultural land were consider rent or revenue. As a result, such profits as agricultural income were tax-free.
  • In this case, a number of high courts have decided in favor of the applicant. According to a retroactive amendment that took effect on April 1, 1970, land counts as agricultural land if the essential requirements are satisfy. Because agricultural land does not fit the definition of a capital asset, there will be no capital gains on its sale.
  • Any additional land not list above shall be treat as a capital asset, and the sale will be subject to capital gains tax on agricultural income, as specifies in Section 54B.

What is the purpose of Section 54B?

In some cases, capital gains on the transfer of land utilize for agricultural purposes are exempt from India’s farm income tax. A taxpayer who sells agricultural land and uses the proceeds to acquire more agricultural land is compensate under Section 54B. To be eligible for this section’s benefits, you must satisfy the following criteria:

  • A single person or a small firm must be the assessor.
  • Agriculture should have been practice on agricultural land. It might be a long-term or short-term financial commitment.
  • Before the land was transfer, it had to be utilize for agricultural purposes by the assessee or his parents for at least two years.
  • The assessee should have bought another piece of property for agricultural uses within two years of the date of sale.

Agriculture Income Refund

If you earn money from agriculture, you may be entitle for a full return of your tax.

  • Agricultural income is around Rs. 5,000.
  • Your sole source of revenue is from agricultural land (no other income). You earn money from both farming and non-farming sources. The total income (excluding agricultural revenue) is insufficient to qualify for the basic exemption.

In India, you’d earn a rebate on farm income tax if you fit the preceding criteria.

Calculating Rebates

If your agricultural revenue surpasses Rs. 5,000 and you have other sources of income, you will have to pay farm income tax in India for that year:

  1. Using the current tax rate, calculate the tax on the whole income (agricultural income plus other income).
  2. Using the current tax rates, calculate the tax on the amount of the basic exemption limit + agricultural income.
  3. Multiply (Step 1) by the tax liability for the year (Step 2). This is the total amount you owe in taxes.

Agriculture Income ITR 1

Agricultural income must be disclose in the Agriculture Income column on Form ITR 1. However, if your agricultural earnings are less than Rs. 5,000, you may only use ITR 1. If your income is more than this, you must submit Form ITR-2.

To summarize – Agribusiness Income Tax

Agriculture is the country’s main source of revenue and a crucial industry. The government has a variety of promotional measures, programmers, and strategies in place for the agriculture business. In India, farmers with agricultural income are also exempt from paying agriculture income tax, and a tax refund on agricultural income is meant to promote agriculture.

We hope that you now have a better idea of how much farm income tax you owe in India on agricultural land incomes and capital gains on agricultural land.

 

 

 

 

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