Agricultural Income: Taxation and Exemption u/s 10(1) of Income Tax Act, 1961

While filling of income tax Return by individuals, they surprised that after adding agricultural income into ITR; Income Tax calculation shows increase in tax without increase of Taxable income. If a person’s Taxable Income is below Exemption Limit but after Agriculture income (which is Exempt) add into ITR then ITR shows Tax Payable.

This is happen when your Taxable Income is below Exemption Limit and aggregate of Taxable and Agriculture Income is above Exemption Limit. So, how this tax calculated in ITR and what is a provision are for agriculture income in Income Tax Act, we will be discussed in later part of this article. we first read the Bare Act provisions, Steps for Tax Calculation, Example and Some Special Cases which is also important in calculation of Agriculture income as well as taxable income.

Provision of Section 10(1) Agricultural Income

Section 10 : In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included;

Sub Section (1) : agricultural income

Agricultural Income’s Impact on Taxability of Other Taxable Income

Agriculture income is exempt however, for computation of income tax, the agriculture income is aggregate with non-agriculture income if any one of the following condition satisfy;

  • Assessee is individual, HUF, AOP/ BOI which is taxable at Normal/Slab Rates
  • Assessee has non-agriculture income which is exceed the Exemption Slab Limit
  • Agriculture income exceed ₹ 5,000.
Note: Agriculture Income is not Considered in case of Firms and Companies.

Steps for Tax Calculation if Agriculture Income is Part of Total Income of Assessee

Step 1

Consider Net Agriculture income as if it were income chargeable to Income Tax. (if Assessee is Growing Tea, Coffee or Rubber then Consider only 60%, 75%, 65% Respectively is Agriculture income)

Step 2

Calculate tax on aggregate total income (Agriculture and Non-agriculture) as if both are taxable income. (i.e., Total Income = Agriculture Income + Non-agriculture Income)

Step 3

Agriculture Income will be added to only nil rated Income Tax Slab [i.e., 3,00,000/- in New Tax Regime(Section 115BAC), In old Regime 2,50,000/- or such increased slabs of Senior Citizen (3,00,000/-) or Super Senior Citizen (5,00,000/-)] and Calculate Tax on Such amount as if such income is the total income of Assessee. (i.e., Total Income = Agriculture Income + 3,00,000/-)

Step 4

Amount of Tax = Tax Calculated in Step 2 (minus) Tax Calculated in Step 3.

Step 5

Calculate Health and Education Cess @ 4% on Amount of tax Received in Step 4.

Step 6

Amount of Tax is Total of Step 4 Tax and Step 5 Health and Education Cess which is payable by Assessee.

Example on Calculation of Tax, if Agriculture Income is part of Total Income

For Assessment Year 2024-25; Assessee Suresh has Net Agriculture Income of Assessee is 4,50,000/- and Non-Agriculture Income is 9,00,000/- (Salary Income, Rental Income and Interest Income). Let’s Calculate Income Tax Payable by Suresh. [Assessee opt for New Tax Regime(Section 115BAC)]

Total Income as per Step 2 = Agriculture Income + Non-Agriculture Income

Total Income as per Step 2 = 4,50,000 + 9,00,000 = 13,50,000/-

Tax on 13,50,000/- as per New Tax Regime = 1,20,000/-


Total Income as per Step 3 = Agriculture Income + 3,00,000/-

Total Income as per Step 3 = 4,50,000 + 3,00,000 = 7,50,000/-

tax on 7,50,000/- as per New Tax Regime = 30,000/-


Income Tax as per Step 4 = Tax Calculated in Step 2 Tax Calculated in Step 3

Income Tax as per Step 4 = 1,20,000 – 30,000 = 90,000/-


as per Step 5 Calculate Health and Education Cess = 90,000 * 4 % = 3,600/-

Total Tax Payable by Assessee Suresh is 90,000+3,600 = 93,600/- for Assessment Year 2024-25.

*If Assessee is not Suresh but Company or Firm then Agriculture Income Not Considered.

Special Cases keep in Mind

  1. Only applicable if Assessee is taxable at slab rate either is New Tax regime or Old Tax Regime.
  2. Renting of Agriculture Land for Business Purpose is not Considered Agriculture Income [Madras High Court Judgement in B. Nagi Reddy v. CIT (2002)(Mad)]
  3. Renting of Agriculture Land to other Farmer or cultivator for purpose of agriculture which is consider as a Agriculture Income.
  4. For Firms or Companies Agriculture Income is also Exempted and also Income Tax Calculated on only on Non-Agriculture Incomes. (above Tax Calculation Method is not Applicable.)
  5. Meaning of Agricultural Income is defined in Section 2(1A) of Income Tax Act, 1961.

Frequently Asked Questions

Is agricultural income included in the total income for income tax calculation purposes?

Yes, agricultural income is considered for income tax calculation if the individual, HUF, or AOP/BOI has non-agricultural income exceeding the exemption slab limit or if the agricultural income itself exceeds ₹5,000.

Are there any special exemptions or considerations for firms and companies regarding agricultural income?

No, agricultural income is not considered for firms and companies. Income tax is calculated only on their non-agricultural incomes. The tax calculation method mentioned in the article is not applicable to firms and companies.

Conclusive Summary

This Article discusses how agricultural income affects the tax calculation for individuals when filing their income tax return. It explains that agricultural income is exempt but needs to be added to non-agricultural income under certain conditions. The Article provides steps for calculating tax when agricultural income is part of the total income, along with an example. It also mentions special cases to keep in mind, such as renting agricultural land for business purposes. The Article refers to the provisions of Section 10(1) of the Income Tax Act, 1961.

Sources

Income Tax India (section 10)

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