Income Tax

Non-Agricultural and Agricultural Income: Will both be taxed?

India is an agricultural rich economy. There are many perks and incentives provided to those who make a living through it. In India, the income from agriculture involves income derived from the sources including commercial production of the agricultural from the horticultural land, any building on the agricultural land, and farming land.

Under the Income Tax Act, 1961 the agricultural income is defined as:

• Any revenue or rent which is derived from any land situate inside the territory of India and used only for agricultural purposes.
• Any gains generated from such land while performing the agricultural activities such as processing of the agricultural produce and further provide it to sale or market of such products.
• Income obtained from the building on farm land required for performing agricultural maneuver.
• Income derived from the seedling and sapling grown in a nursery shall suppose to be agricultural income.

Examples of Agricultural Income

The following are some examples of agricultural income:

• Income derived from the sale of seeds;
• Income from the sale of replanted trees;
• Any rent received from  the agricultural land;
• Any income received from growing creepers and flowers;
• Any profits made by the partner of the firm who is engaged in agricultural activities and produce;
• Interest received on the capital of the partner of the firm who is engaged in agricultural operations.

Examples of Non Agricultural Income

The following are some example of the non agricultural income

• Income derived from bee hiving;
• Income derived from the poultry farming;
• Income derived from the sale of the spontaneously grown trees;
• Income derived from the dividend  that an organization pays from the agricultural income;
• Broker’s commission earned by selling  agricultural produce;
• Purchase of the standing crops;
• Proceeds generated through cheese and butter making;
• Royalty receive from the mines; and
• Income from the TV Shoot in the farms.

Tax implication on Agricultural income

A mentioned above, the agricultural income is exempted from Income tax. However, if an assessee has agricultural income as well as non-agricultural income, such income which is generated through the agricultural activities will be included in the total income for the reason of computation of Income tax on the non-agricultural Income.

This method is also recognized as the partial integration of the agricultural income with non-agricultural income or an indirect method for taxing agricultural income. However, the tax act aims to levy higher taxes on non-agricultural income.

This method is applicable in the following conditions

Applicability

• All the HUFs, BOIs, AOPs, Individuals, and artificial judicial persons have to mandatory calculate their Income using this method. Thus LLP, co-operative society, company, firm, and any local authority are excluding to exercise this method.
• The total agricultural income must be more than Rs. 5000 during this year.
• Non agricultural income is:
• More than Rs 2, 50,000 – Below 60 years of age.
• More than Rs 3, 00,000 – Between 60-80 years of age.
• More than Rs. 5,00,000 – Above 80 years of age

In simpler terms, the non-agricultural income must be more than the highest amount not chargeable to tax. (As per the Tax Slab)

Calculation of agricultural Income

The following step is to be followed for the calculation of the agricultural Income:

1. The first step involved is to calculate tax on Non agricultural income and add it to the net agricultural income.
2. The second method involves the calculation of tax on the Net agricultural income and further adds it to maximum exception as per slab rates.
3. In the final step, deduct (2) from (1) and further subtract rebate, if available, and add all the surcharges as applicable and all the education and higher and secondary education cess.

Taxation of partly agricultural income

There are some businesses that includes both, agricultural^[1] income as well as non-agricultural income. In these cases, the problem arises in the taxation as to how much part of the business is to be treated as non agricultural and how much to be treated as agricultural. Hence, in India, the income tax act has provided with the % where some of the parts of the business to be treated as agricultural rest non agricultural income.

These businesses include rubber, coffee and tea and further regulated by these percentages:

Particulars	Agricultural	Non-Agricultural
Manufacturing and growing tea	60%	40%
Manufacturing and growing rubber	65%	35%
Manufacturing and growing coffee	75%	25%
Manufacturing and growing of coffee roasted, grounded. grown and cured	60%	40%

Agricultural income through operation carried on urban land

The agricultural operations which are conducted out on any land, either rural or urban, the income which is obtained from the sale of the agricultural generate must be treated as agricultural revenue with the exempt from tax.

The exception to the calculation of Agricultural Income

In any case, where the criterion related to the agricultural land is not met under the section of Income tax, the individual required to carry out a separate tax evaluation. Also, if the total income is below Rs. 5000, then the ITR has to be filled.

Conclusion

In India, agriculture is the biggest job giver and a source of income for the huge rural population. The country is significantly dependent on agriculture to fulfill their basic requirements.  The exemption will be provided only for agricultural income, not for non-agricultural purposes. However, if an assessee has agricultural income as well as non-agricultural income, such income which is earned through the agricultural activities will be included in the total income for the reason of computation of Income-tax on the non-agricultural Income.

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