CONCEPT OF AGRICULTURE INCOME- AN INSIGHT AND ITS CHARGEABILITY

  

Agricultural Income Tax Treatment / Taxability

Agricultural income is not subject to income tax. The Income-tax Act has, however, specified how such income is to be indirectly taxed. This is called the partial integration of agricultural and non-agricultural income. 

Agricultural income is not taxable under Section 10 (1) of the Income Tax Act as it is not counted as a part of an individual's total income. However, the state government can levy tax on agricultural income if the amount exceeds Rs.5,000 per year. It is categorised as a valid source of income and basically includes income from sources that comprise agricultural land, buildings on or related to an agricultural land and commercial produce from agricultural land. This income is considered for rate purposes while calculating the income tax liability of an individual.

Union Budget 2023-24 Highlights

Here are the Union Budget 2023-24 highlights with respect to the agricultural sector:

• Approximately Rs.1.25 lakh crore has been earmarked for the Ministry of Agriculture and Farmers Welfare, including Agricultural Education and Research.

• Another major development for the agricultural industry is the establishment of an Agriculture Accelerator Fund to encourage startups by young entrepreneurs in rural regions.

What is Considered as Agricultural Income?

Section 2 (1A) of the Income tax Act details out the conditions wherein sources can be considered to be generating agricultural income. The section’s definitions basically point out the following as the sources of agricultural income –

1. Renting/leasing agricultural land for agriculture, storeroom, residential place and outhouse.
2. Money earned from trees growing in nurseries as seedlings or saplings.
3. Renting/leasing agricultural land for by cultivator or farmer.
4. Any income due to commercial use of agricultural land
5. The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed .

A few exclusions to this income will be as follows:

• Revenue from sale of processed produce of agricultural nature without actual agricultural activity
• Revenue from extremely processed produce
• Revenue from trees that have been sold as timber

Key points to remember while considering if an income is actually a valid agricultural income:

1. Income should be from an existent piece of land
2. Income should be from a piece of land that is used for agricultural operations
3. Income should stem from produce achieved after cultivation of the land
4. Income can be from a land that is not under the assessee’s ownership

Is Agricultural Income Taxable?

By default, agricultural income is exempted from taxation and not included under total income. The Central Government can’t impose or levy tax on agricultural income. The exemption clause is mentioned under Section 10 (1) of the Income Tax Act of India.

Central Government

The Central Government can’t impose or levy tax on agricultural income. The exemption clause is mentioned under Section 10 (1) of the Income Tax Act of India.

State Government

State Governments can charge agricultural tax. As of the latest amendment, income from agriculture, if within INR 5000 in a financial year, will not be accounted for tax purposes. Anything above that will be taxable as per the applicable rates. As per the finance act, the total tax liability for a person would include the agriculture income added to the non-agricultural portion.

• Income above Rs.5,000: Though exempted from tax through Section 10 (1), tax on agricultural income persists at the state level if the mentioned income exceeds INR 5000 per year and if the total income excluding agricultural income is more than the basic exemption limit.

• Basic threshold: In addition to net agricultural income, total income is higher than the basic exemption threshold.

• Tax Benefit Under Section 54B ITA, 1961

  Under section 54, any individual or HUF may claim a tax benefit (B). The benefit is for taxpayers who sell their agricultural property and then purchase an additional agricultural property. The following criteria must be met for this tax benefit:

  • Applicable to individuals
  • The land must be used for agricultural purposes (either by the applicant or their parents) for at least 2 years before the land was sold.
  • Applicable to HUFs
  • The land must be used for agricultural purposes for at least 2 years prior to the sale of the land. Any member of the HUF must use the land in the case of the HUF.
  • Within two years of the sale of the prior land, the taxpayer is required to buy new agricultural land.