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AGRICULTURAL INCOME
UNIVERSITY OF MUMBAI
MASTER OF COMMERCE
(Advanced Accounting)
SEMESTER 3
2016-17
SUBMITTED BY
Roll No.: 52
PROJECT GUIDE
CA.NACHIKET PATWARDHAN.
K.P.B HINDUJA COLLEGE OF COMMERCE
3rd SEMESTER
AGRICULTURAL INCOME.
SUBMITTED BY
ZARANA AGNIHOTRI
Roll No.: 52
NAAC Re-Accredited A
9001:2008 THE BEST COLLEGE OF UNIVERSITY OF MUMBAI FOR THE ACADEMIC YEAR 2010
Prin. Dr. Minu Madlani (M. Com., Ph. D.)
CERTIFICATE
DECLARATION
I Mr. / Ms. ZARANA AGNIHOTRI student of M.Com-Business
Management, 4th semester (2016-2017), hereby declare that I
have completed the project on AGRICULTURAL INCOME
(Signature)
Student
AGRICULTURAL INCOME
INDEX
Sr. Topics
No.
1 INTRODUCTION
6 CALCULATION
7 CASE STUDY
8 BIBLIOGRAPHY
INTRODUCTION:
Agricultural income [2(1A)] has not been taxed right from the beginning under
the Income-tax Act. The justification for such exemption is that income from
agriculture is taxed in the form of land revenue. Another reason for its being
kept outside the purview of the Income-tax Act, 1961, is that agriculture being a
State subject, the Central Government is not entitled to tax this source of
income. The State Governments are of course, free to tax this source. A few of
them are, in fact, doing so. The position under the Income-tax Act is that section
10(1) exempts agricultural income from income-tax. Because of the exemption
it enjoys, it is necessary to clearly understand the definition of the term
Agricultural Income. In the exact sense, Agricultural Income as defined u/s
2(1A) includes the various types of incomes.
Selling of crop:
Cash received by selling the agricultural product is also called agricutural
income. For example: if a producer sells the 1000 Kg sugar and receives Rs
50,000 will be called agricultural income.
Building:
Income received from any building which is used for agricultural purposes is
called agricultural income.
Process of production:
By growing the agricultural product a cultivator receives the income. It is also
called agricultural income.
Income from sale of agricultural land. The Finance Act, 1989 has added an
explanation to section 2(IA) as a result of which any revenue derived from land
shall not include and shall be deemed never to have included any income arising
from the transfer of any land mentioned in section 2(14) (iii) (a) or (b). It has
been made applicable retrospectively from 1-4-1970. It simply means that any
income from transfer of urban agricultural land will not form part of agricultural
income. It will be taxable income under the head Capital Gains.
(c) The land if assessed to land revenue in India or is subject to a local rate
assessed and collected by officers of the Govt. and in case the land is not
assessed to land revenue or to local rate, it should not be situated within the
urban areas.
Explanation:
Rent, revenue or income received from the sale of any product grow in his own
country land is called agricultural income. The product must be produced by
employing the human labour.
Note: If anything which is produced from the land without human effort then it
will be called non-agricultural income.
Example 2: A person grows rice and sells the crops. The amount receives is
called agricultural income.
Example 3: A landlord grows plants and trees on his land. The income he
derives from that is called agricultural income.
Example 4: A landlord receives the rent in the form of crops this share of
product is also called agricultural income.
Examples:
Income received from flour mill.
Income from market.
Income from selling trees.
Income from cutting trees.
Income received from land used for storing timber.
Income from mining.
Income from supply of water for irrigation.
Income from stone quarries.
Income from fisheries.
Income from sale of earth for the bricks making.
Income from cotton ginning factory.
Net Agricultural income exceeds INR 5,000/- for P.Y. 2014-15, and
Total income, excluding net Agricultural income, exceeds INR 2,50,000/-.
Kindly note that the aforementioned condition at Serial No.2 shall change to
INR 3,00,000/- in case if the Assessee is an individual who falls in the age
bracket of 60 to 79 Years during the P.Y. 2014-15, and to INR 5,00,000/- in case
if the Assessee is an individual who is of the age of 80 Years or more during the
P.Y. 2014-15.
Once the aforementioned conditions are satisfied then we shall compute the Tax
liability in the following manner:
First, include the Agricultural income while computing your income Tax
liability. Example Let us say that an Individual Assessee has a Total income of
INR 7,50,000/- (excluding Agricultural income) and a Net Agricultural income
of INR 100,000/-. Then, per this step, Tax shall be computed on INR 7,50,000/-
+ INR 1,00,000/- = INR 8,50,000/-. Thus, income Tax amount as per this step
shall be INR 95,000/- for an individual who is below the age of 60 Years during
the P.Y. 2014-15.
Second, add the applicable basic Tax slab benefit, as applicable, to the Net
Agricultural income. Thus, per our example mentioned above we shall add INR
2,50,000/- to INR 1,00,000/- as the applicable Tax slab benefit available to an
individual below 60 Years of age is INR 2,50,000/-. Now we will compute
income Tax on INR 3,50,000/- (Tax slab benefit 2,50,000 + Net Agricultural
income 1,00,000). The amount of Tax shall be INR 10,000/-.
Third, subtract the Tax computed in Second step from the Tax computed in
First step = INR 85,000/-. Thus, this is the income Tax liability subject to
deductions, Education cess etc., as applicable.
The aforementioned treatment of Agricultural income has been illustrated
subject to Finance (No.2) Act, 2014.
The tax calculation done here is in accordance with the fact that the income
from agricultural sources is falling under Section 2 (1A) of the IT Act.
For all other normal purposes, the tax calculation will involve the following
steps:
Adding the basic tax slab benefit Depending upon changes in the Income
Tax rules, the basic tax slab might change, but for claritys sake, lets consider
that as S. That needs to be added to the agricultural income and another tax is be
calculated on the amount. Lets call this tax as T(S+A)
Income Tax liability This is the tax that is subject to deductions. Thus IT =
T(B+A) T(S+A)
One should always remember to aggregate the agricultural income while
calculating tax since that can allow one to avoid unnecessary extra taxes or
interest on taxes.
We have assumed that the income earned by you from the agricultural land is
covered under section 2(1A) of the Income-tax Act and accordingly exempt
from tax under section 10.
However, for the limited purpose of determining the tax rate, while calculating
tax liability for the financial year (FY), you would be required to include the
agricultural income in the total income provided the following two conditions
are cumulatively satisfied:
1. Net aggregate agricultural income during financial year 2015 (FY15) exceeds
Rs. 5,000 (otherwise the entire agricultural shall not be included for rate
purpose); and
2. Total income, excluding net agricultural income, exceeds applicable basic
income exemption, i.e., Rs.2.5 lakhs for FY15.
The basic income exemption for an individual of age between 60 and 80 years is
Rs.3 lakhs for FY15. Further, the basic exemption for an individual above 80
years of age is Rs.5 lakhs.
For easy understanding, the steps for computing tax liability for FY15 have
been outlined below, assuming your age is below 60 years.
Step 1: Lets say your total income of Rs.12 lakhs comprises net agricultural
income of Rs.1 lac and salary income of Rs.11 lakhs. Accordingly, basic tax on
the aggregate income of Rs.12 lakhs shall amount to Rs.1.85 lakhs.
Step 2: Add the applicable basic tax slab benefit, i.e., Rs.2.5 lakhs to the net
agricultural income. Accordingly, in this case, the total income shall be Rs.3.5
lakhs (i.e. Rs.2.5 lakhs plus Rs.1 lac). So, the tax amount would work out to Rs.
10,000.
Step 3: Subtract the tax computed at step 2 from the tax computed at step 1
(Rs.1.85 lakhs minus Rs. 10,000), i.e., Rs.1.75 lakhs. Accordingly, the net basic
tax would be Rs.1.75 lakhs.
If total taxable income during FY15 exceeds Rs.1 Crore, surcharge at 10% on
basic rate should be applied. Education cess should be applied on basic tax rate
and surcharge, if applicable. If agricultural income is not covered under section
2(1A), a separate evaluation would be needed. If your aggregate agricultural
income is up to Rs. 5,000 during FY15, then the entire income shall be exempt
from tax. Accordingly, you need to disclose the agricultural income in the
income tax return (ITR) 1 form to be compliant from the disclosure perspective.
But if the agricultural income exceeds Rs. 5,000, then form ITR 2 applies,
which has a separate column for disclosure of agricultural income.
CASE STUDY:
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