India is an agricultural economy, meaning most citizens earn their living from producing crops and maintaining farms. As a result, the Government of India (GOI) offers tax benefits to individuals who earn their income from agriculture. This helps to promote growth in this sector and improve the livelihoods of the country’s farmers. However, there are some other forms of agricultural income tax that one might have to pay to the Government. This blog discusses the details of agricultural income tax in India. Read on!
Agricultural income tax in India refers to any revenue derived from farming or other agricultural-related sources. Income Tax Act, 1961 defines income tax on agricultural income under section 2(1A). As per this income tax section, the agriculture income refers to:
The different types of agricultural income in India are as follows:
Moreover, the rent receiver or cultivator must occupy the building or use it for agricultural purposes. If the land is situated in an urban location, it must be a certain distance away from the nearest municipality.
Under Section 10(1) of the Income Tax Act, agricultural income is exempted from income taxes in India. However, there are certain instances where the agriculture income is taxable.
Agricultural operations are subject to indirect taxes under the partial integration of agricultural income with non-agricultural income. It aims to tax non-agricultural income at a higher tax rate. This method applies to individuals, AOPs (Association of Persons), HUFs (Hindu Undivided Family), BOIs (Body of Individuals) and artificial juridical individuals when the following conditions are met:
In certain circumstances where the agricultural land is transferred, and the taxpayer receives capital gains, the taxpayer will not have to pay agricultural tax. Under Section 54B of the Income Tax Act, taxpayers who sell their agricultural land to buy another plot of land will be compensated.
To be eligible for these benefits, one must meet the following prerequisites:
If your sole source of income is from agriculture, you should report it as agriculture income under the Income Tax Act. You can report your income under ITR 1 under the Agriculture Income column. However, you can only use the ITR 1 Form when your income is below Rs 5000. If your income is more than Rs.5000, you need to use ITR 2 Form to report your earnings.
Individuals, who are required to pay taxes on the income they make from agricultural operations and processes related to it, should keep the following things in mind:
If the individual someday decides to sell the agricultural land that he/she owns, the following rules will be applicable:
Individuals are eligible for a complete refund of tax on their agricultural income if the following prerequisites are:
As stated earlier, if an individual’s total agricultural income exceeds Rs. 5,000 and he or she also has other sources of income, the agricultural income will be calculated through the following method:
Step 1: You need to calculate your total income, including agricultural income + non-agricultural income (under the latest tax rate).
Step 2: Then, you need to compute your taxes on the total of your basic exemption limits + your agricultural income under the current tax slab.
Step 3: To calculate your tax liability for a particular financial year, you need to multiply the results from steps 1 and 2 to deduce your total tax bill.
In India, the Income Tax Act exempts agricultural income tax under Section 10(1), so one can have tax-free income without any limits from this source. However, there has always been a huge controversy as to why the GOI does not tax this sector, unlike income from other sectors.
The GoI does not want to tax the agricultural sector in order to boost the country’s agricultural sector. Furthermore, it also wants to support the oppressed farmers.
Ans: If you carry out agricultural operations on the land meant for agricultural purposes, you will be exempted from paying taxes even if the land is situated in an urban area.
Ans: If you cultivate tea, then the Government exempts that process from paying taxes. However, the Government does not exempt the process of packaging those tea leaves into tea bags and eventually selling them commercially.
Ans: No, the Indian Government levies taxes on exporting agricultural tools. Exporting a tool involves many middlemen and also goes through a lot of steps. The GOI levies export duty and GST on exports of agricultural machinery.
Ans: No, any form of income from poultry farming will not be considered part of agricultural income. Moreover, the Government will levy a certain amount of tax as well.
Ans: Some sources that the GoI considers income from non-agricultural sources are:
Cheese and butter making
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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