PROJECT REPORT ON AGRICULTURAL INCOME UNIVERSITY OF MUMBAI
MASTER OF COMMERCE (Advanced Accountin! SEMESTER " # $%&'&)
SUBMITTE* BY Na+e, -ARANA AGNI.OTRI Ro// No0, 1$
PROJECT GUI*E CA0NAC.I2ET PAT3AR*.AN0
20P0B .IN*UJA COLLEGE OF COMMERCE #&17 NE3 C.ARNI ROA*7 MUMBAI;%% %%; M0Co+ (Advanced Accountin!
#4d SEMESTER
AGRIC UL ULTURAL TURAL INCOME 0
SUBMITTE* BY
-ARANA AGNI.OTRI
Ro// No0, 1$
20P0B0 .IN*UJA COLLEGE OF COMMERCE 315, New Charni Road, Road, Mumbai 400 004 Tel.: 022- 40989000 a!: 2385 93 9". #mail:
NAAC ReAcc4 ReAcc4edited edited 5A6 9%%&,$%%:
T.E BEST COLLEGE OF UNIVERSITY OF MUMBAI FOR T.E ACA*EMIC YEAR $%& P4in0 *40 Minu Mad/ani (M0 Co+07 P80 *0!
CERTIFICATE
Thi$ i$ %o &er%i'( %ha% M$. -ARANA AGNI.OTRI o' M.Com )*&&oun%in+ eme$%er 3rd 201/-201" ha$ $u&&e$$'ull( &omle%ed %he roe&% on AGRICULTURAL INCOME under %he +uidan&e o' CA0NAC.I2ET PAT3AR*.AN 0
6n%ernal #!aminer
#!%ernal #!aminer
Principal
College Seal
DECLARATION
6 Mr. 7 M$. -ARANA AGNI.OTRI
The in'orma%ion $ubmi%%ed i$ %rue and ori+inal &o( %o %he be$% o' our nowled+e.
(Sinatu4e!
Student
IN*E= S40 No0
To>ic<
1
INTRO*UCTION
2
KINDS OF AGRICULTURAL INCOME
3
NON AGRICULTURAL INCOME
4
TAXABILITY OF AGRICULTURAL INCOME POST AMENDMENT BY FINANCE (NO.2) ACT, 2014
5
TAX ON AGRICULTURAL INCOME
CALCULATION
!
CASE STUDY
"
BIBLIOGRAP#Y
INTRODUCTION:
Income received from the following sources is called Agricultural Income according the income tax ordinance.
Income received from land situated in his own country.
Land is used for agricultural purposes.
Agricultural income [!"A#$ has not %een taxed right from the %eginning under the Income&tax Act. 'he (ustification for such exemption is that income from agriculture is taxed in the form of land revenue. Another reason for its %eing )ept outside the purview of the Income&tax Act* "+,"* is that agriculture %eing a State su%(ect* the Central -overnment is not entitled to tax this source of income. 'he State -overnments are of course* free to tax this source. A few of them are* in fact* doing so. 'he position under the Income&tax Act is that section "!"# exempts agricultural income from income&tax. /ecause of the exemption it en(oys* it is necessary to clearly understand the definition of the term 0Agricultural Income1. In the exact sense* 0Agricultural Income1 as defined u2s !"A# includes the various types of incomes.
KINDS OF AGRICULTURAL INCOME$ According to the definition given u2s !"A#* agricultural income can %e classified into the following five )inds:
3ent or revenue derived from land.
Income derived from land %y agriculture.
Income %y the performance of any process to render the produce fit to %e mar)eted.
Income %y the sale of the produce raised or received %y him as rent.
Income from %uilding owned and occupied %y the cultivator or the receiver of rent&in&)ind. !Provided it is in the immediate vicinity of the land and is used as a dwelling house or a store house or an out&%uilding in connection with it. 'he land on which the %uilding is situated must also fulfil the conditions already mentioned.#
FOLLO%ING ARE T#E AGRICULTURAL INCOMES$ Income from land leased out as gra4ing land for cattle re5uired for agricultural purposes.
TYPES OF AGRICULTURAL INCOME 6n the %asis of definition of agricultural income given a%ove* it can %e classified into five %road categories. 'hese types of agricultural incomes are :
7ollowing are the important )inds of agricultural income: I&'* + -* C/$
/y cultivating the agricultural land a lessee receives the income* which is called agricultural income.
R*& + /&$
3ent received %y the owner of agricultural land is also called agricultural income.
S*//& + '6$
Cash received %y selling the agricultural product is also called agricutural income. 7or example: if a producer sells the " 8g sugar and receives 3s 9* will %e called agricultural income.
B/&:
Income received from any %uilding which is used for agricultural purposes is called agricultural income.
P'*77 + 6'&$
/y growing the agricultural product a cultivator receives the income. It is also called agricultural income.
1. A&8 &'* *'** 7 *& **&* + '// /&
3ent can very simply %e defined as a payment in cash or in&)ind which the owner of the land receives from another person in consideration of a grant of a right to use land. hen the owner of land is not performing agricultural operations himself %ut gives his land on contract %asis* any amount received
from the actual cultivator %y the owner of the land shall %e agricultural income. Such rent may he in cash or in&)ind* i.e.* a share in the produce grown %y the cultivator.
Income from sale of agricultural land. 'he 7inance Act* "+;+ has added an explanation to section !IA# as a result of which any revenue derived from land shall not include and shall %e deemed never to have included any income arising from the transfer of any land mentioned in section !"<# !iii# !a# or !%#. It has %een made applica%le retrospectively from "&<&"+=. It simply means that any income from transfer of ur%an agricultural land will not form part of agricultural income. It will %e taxa%le income under the head 9C6/ G&7:.
2. I&'* ** + A'/*
Income derived from land situated in India %y applying agricultural operations shall %e agricultural income. If all the %asic operations li)e preparation of land for sowing* planting* watering* harvesting etc. are applied* any income resulting from such operations shall %e agricultural income. 6n the other hand* if grass*
trees etc. have grown spontaneously or without the aid of human s)ill* effort* la%our etc.* any income resulting from the sale of such grass* trees or lease rent of such land shall not he agricultural income.
Agricultural income also includes income from orchards or from horticulture. It is further to he noted that if a particular income is derived from land %ut without applying agricultural operations* such an income although derived from land cannot %ecome agricultural income and so any income having remote connection with land cannot he called as agricultural income. Income from poultry and dairy farming* fisheries* mining* stone 5uarries* %reeding and rearing of livestoc)* all these incomes although remotely lin)ed with land %ut cannot he called agricultural incomes %ecause of the a%sence of important characteristics of agricultural income* i.e.* cultivation of land.
Income which is in the nature of %y&products of agricultural land such as selling of mil)* the pasturing of cattle etc. can safely he included in agricultural income provided the endeavour is agricultural and it is reasona%ly connected with land used for agricultural purposes.
3. A&8 &'* ''& -* 6*7& ;8 -* 6*+&'* + &8 6'*77 *&* -* 6'* <*;/*.
If* in the ordinary course* a process is to he employed %y the cultivator himself or the landlord who receives the produce as rent&in&)ind* any income derived from such a process shall he agricultural income. Such a process must %e
employed to render the produce fit for mar)eting. 'he process may he manual or mechanical. It should %e noted that the produce should not change its original character in spite of the processing unless the produce cannot %e sold in that form or condition.
7ollowing points are to he noted in this connection : !a#
'he process must he one which is ordinarily employed %y the cultivator.
!%#
'he process is employed to render the produce fit to %e ta)en to the
mar)et. !c#
'he produce must retain its original character in spite of process unless
the produce is having no mar)et if offered for sale in its original condition.
4. A&8 &'* *'** ;8 -* 6*7& ;8 -* 7/* + 6'* 7* *'** 7 *&=&=<&.
Any income derived %y any person %y the sale of agricultural produce raised %y him or received as rent&in&)ind shall also %e agricultural income. Sometimes such person puts some extra effort %y selling the produce through his own shop* any extra profit raised due to shopping activities shall not he agricultural income.
5. I&'* + ;/&7 7* + '/*.
Any income derived from a %uilding used for agricultural operations shall %e agricultural income provided
!a# 'he %uilding from where the income is received* is in the immediate vicinity of the land and is occupied %y the owner* or %y the cultivator or %y the receiver of rent&in&)ind.
!%# /uilding is used as a dwelling house or a store house or other out&%uilding. 'he cultivator or the receiver of the rent&in&)ind* %y reason of his connection with the land* is in need of the house as a dwelling house or as a house to store the goods re5uired for agricultural operations.
!c# 'he land if assessed to land revenue in India or is su%(ect to a local rate assessed and collected %y officers of the -ovt. and in case the land is not assessed to land revenue or to local rate* it should not %e situated within the ur%an areas.
E>6/&&$
3ent* revenue or income received from the sale of any product grow in his own country land is called agricultural income. 'he product must %e produced %y employing the human la%our.
N*$ If anything which is produced from the land without human effort then it
will %e called non&agricultural income.
E>6/* 1$ Spontaneous trees grown without human la%our is non&agricultural
income.
E>6/* 2$ A person grows rice and sells the crops. 'he amount receives is
called agricultural income.
E>6/* 3$ A landlord grows plants and trees on his land. 'he income he
derives from that is called agricultural income.
E>6/* 4$ A landlord receives the rent in the form of crops this share of
product is also called agricultural income.
NON AGRICULTURAL INCOME :
7ollowing incomes are not included in agricultural income.
Any income received from the land which is not used for agricultural purposes.
Income not received from land.
Income received from the land which is not situated in his own country.
E>6/*7: •
Income received from flour mill.
•
Income from mar)et.
•
Income from selling trees.
•
Income from cutting trees.
•
Income received from land used for storing tim%er.
•
Income from mining.
•
Income from supply of water for irrigation.
•
Income from stone 5uarries.
•
Income from fisheries.
•
Income from sale of earth for the %ric)s ma)ing.
•
Income from cotton ginning factory.
TAXABILITY
OF
AGRICULTURAL
INCOME
AMENDMENT BY FINANCE (NO.2) ACT, 2014$
POST
Agricultural income is exempt from Income 'ax under section "!"# of the Income 'ax Act* "+,". >owever* its included* for rate purposes* in computing the Income 'ax Lia%ility if following two conditions are cumulatively satisfied:
?et Agricultural income exceeds I?3 9*2& for P.@. "<&"9* and 'otal income* excluding net Agricultural income* exceeds I?3 *9*2&.
8indly note that the aforementioned condition at Serial ?o. shall change to I?3 **2& in case if the Assessee is an individual who falls in the age %rac)et of , to =+ @ears during the P.@. "<&"9* and to I?3 9**2& in case if the Assessee is an individual who is of the age of ; @ears or more during the P.@. "<&"9.
6nce the aforementioned conditions are satisfied then we shall compute the 'ax lia%ility in the following manner:
F7* include the Agricultural income while computing your income 'ax
lia%ility. Bxample Let us say that an Individual Assessee has a 'otal income of I?3 =*9*2& !excluding Agricultural income# and a ?et Agricultural income of I?3 "*2&. 'hen* per this step* 'ax shall %e computed on I?3 =*9*2& D I?3 "**2& E I?3 ;*9*2&. 'hus* income Tax amount as per this step shall be INR 95,000/- for an individual who is below the ae of !0 "ears durin the #$"$ %0&'-&5.
S*'&* add the applica%le %asic 'ax sla% %enefit* as applica%le* to the ?et
Agricultural income. 'hus* per our example mentioned a%ove we shall add I?3 *9*2& to I?3 "**2& as the applica%le 'ax sla% %enefit availa%le to an
individual %elow , @ears of age is I?3 *9*2&. Now we will compute income Tax on INR (,50,000/- )Tax slab benefit %,50,000 * Net +ricultural income &,00,000$ The amount of Tax shall be INR &0,000/-$
T-* subtract the Tax computed in econd step from the Tax computed in
.irst step INR 5,000/-. 'hus* this is the income 'ax lia%ility su%(ect to deductions* Bducation cess etc.* as applica%le. 'he aforementioned treatment of Agricultural income has %een illustrated su%(ect to 7inance !?o.# Act* "<.
TAX ON AGRICULTURAL INCOME$ Agricultural income in India is categorised as a valid source of income and %asically includes income from sources that comprise agricultural land*
%uildings on or related to an agricultural land and commercial produce from an agricultural land. 'his income is considered for rate purposes while calculating the income tax lia%ility of an individual. K*8 6&7 **;* ?-/* '&7*& + & &'* 7 '//8 / '// &'* @
Income should %e from an existent piece of land
Income should %e from a piece of land that is used for agricultural operations
Income should stem from produce achieved after cultivation of the land
Income can %e from a land that is not under the assessee1s ownership
I7 A'// I&'* T>;/*
/y default* agricultural income is exempted from taxation and not included under total income. 'he Central -overnment can1t impose or levy tax on agricultural income. 'he exemption clause is mentioned under Section " !"# of the Income 'ax Act of India. >owever* state governments can charge agricultural tax. As of the latest amendment* income from agriculture* if within I?3 9 in a financial year* will not %e accounted for tax purposes. Anything a%ove that will %e taxa%le as per the applica%le rates. As per the finance act* the total tax lia%ility for a person would include the agriculture income added to the non&agricultural portion. 'hough %eing exempted from tax through Section " !"#* tax on agricultural income still persists in the state level if the mentioned income exceeds I?3 9 per year and if the total income excluding agricultural income is more than the %asic exemption limit. 7or firms* non& individuals and companies it is easier to pay the associated tax as the tax is charged at a flat rate on the chargea%le income. 7or salaried individuals* it might increase the tax they need to pay %ecause of the aggregation of income.
CALCULATION$ C/'/& + T> <& A'// I&'* & A''&$
In case the agricultural land is not falling under the scope of the aforementioned section* one would need to do a separate evaluation (ust for that aspect of tax. If the agricultural income is well within I?3 9* the returns need to %e filed through I'3 "* else I'3 needs to %e used wherein there is a separate column for declaring the details of the income.
'he tax calculation done here is in accordance with the fact that the income from agricultural sources is falling under Section !"A# of the I' Act. 7or all other normal purposes* the tax calculation will involve the following steps:
I&'/& -* A'// I&'* Considering / is the %ase income of the
individual and A is the agricultural income* tax first needs to %e computed on the amount of /DA. Let1s call this tax as T(BA)
A& -* ;7' > 7/; ;*&*+ Fepending upon changes in the Income
'ax rules* the %asic tax sla% might change* %ut for clarity1s sa)e* let1s consider that as S. 'hat needs to %e added to the agricultural income and another tax is %e calculated on the amount. Let1s call this tax as T(SA) I&'* T> /;/8 'his is the tax that is su%(ect to deductions. 'hus I' E
'!/DA# '!SDA#
6ne should always remem%er to aggregate the agricultural income while calculating tax since that can allow one to avoid unnecessary extra taxes or interest on taxes.
I 7/* 6*7& ; I /7 -* &/ &'* + 6*'* + '// /& - I ?&. #? 7-/ I '6* > & 7-? -* &'* ?-/* +/& *&7 —Jatin Srivastava
e have assumed that the income earned %y you from the agricultural land is covered under section !"A# of the Income&tax Act and accordingly exempt from tax under section ".
>owever* for the limited purpose of determining the tax rate* while calculating tax lia%ility for the financial year !7@#* you would %e re5uired to include the agricultural income in the total income provided the following two conditions are cumulatively satisfied: ". ?et aggregate agricultural income during financial year "9 !7@"9# exceeds 3s. 9* !otherwise the entire agricultural shall not %e included for rate purpose#G and . 'otal income* excluding net agricultural income* exceeds applica%le %asic income exemption* i.e.* 3s..9 la)hs for 7@"9. 'he %asic income exemption for an individual of age %etween , and ; years is 3s. la)hs for 7@"9. 7urther* the %asic exemption for an individual a%ove ; years of age is 3s.9 la)hs. 7or easy understanding* the steps for computing tax lia%ility for 7@"9 have %een outlined %elow* assuming your age is %elow , years.
S*6 1$ Let1s say your total income of 3s." la)hs comprises net agricultural
income of 3s." lac and salary income of 3s."" la)hs. Accordingly* %asic tax on the aggregate income of 3s." la)hs shall amount to 3s.".;9 la)hs. S*6 2$ Add the applica%le %asic tax sla% %enefit* i.e.* 3s..9 la)hs to the net
agricultural income. Accordingly* in this case* the total income shall %e 3s..9 la)hs !i.e. 3s..9 la)hs plus 3s." lac#. So* the tax amount would wor) out to 3s. "*. S*6 3$ Su%tract the tax computed at step from the tax computed at step "
!3s.".;9 la)hs minus 3s. "*#* i.e.* 3s.".=9 la)hs. Accordingly* the net %asic tax would %e 3s.".=9 la)hs. If total taxa%le income during 7@"9 exceeds 3s." Crore* surcharge at "H on %asic rate should %e applied. Bducation cess should %e applied on %asic tax rate and surcharge* if applica%le. If agricultural income is not covered under section !"A#* a separate evaluation would %e needed. If your aggregate agricultural income is up to 3s. 9* during 7@"9* then the entire income shall %e exempt from tax. Accordingly* you need to disclose the agricultural income in the income tax return !I'3# " form to %e compliant from the disclosure perspective. /ut if the agricultural income exceeds 3s. 9** then form I'3 applies* which has a separate column for disclosure of agricultural income.
CASE STUDY$
CIT 7 R S-7-*& B- 24 ITR 1 (A11).
Income derived from running of a dairy* which is 5uite incidental to agriculture and planting %ushes in replacement of %ushes that have died or %ecome per& manently useless.
CIT 7 K<&* D8, R&& ITR 502.
Income from the sale of dried to%acco leaves has %een held to %e agricultural income since to%acco leaves are ordinarily dried to ma)e them fit for sale.
CIT K M-7-& R? ITR (M.)
3ent for agricultural land received from su%&tenants %y the mortagagee in pos& session is agricultural income.
R M7+ A/ K-& CIT 11 ITR 330 (P.C.).
Sum received from an insurance company for damage caused %y hailstorm to the green leaf forming part of the assessee1s tea garden is agricultural income.
CIT G6 (T*) P. L. !4 ITR 33!.
hen there was no mar)et for the sugarcane produced %y the assessee in its natural condition* income received %y the assessee from sale of (aggery was exempt from tax as agricultural income.
CIT #.G. D* "2 ITR !1 (B.).
?a4ar or Salami paid %y a tenant to the landlord for the recognition of a non& transfera%le holding is rent or revenue and is exempt from tax.
N?; M*- B& K-& S*'*8 + S* 2 ITC .
Income derived from toddy is agricultural income when it is received %y the actual cultivator* whether owner or lessee of the land on which the trees grow. If the income is o%tained %y a person who has not produced the trees from which the toddy is tapped or has not done any agricultural operation where%y those trees have %een raised* it is not agricultural income.
CIT Y66 N ILR 50 M 23.
eighing charges levied %y a landlord from his tenants in addition to the rent under agreement entered into with the tenant are agricultural income.
T-* P;8&; 7 +, 4 ITR 114 (L-).
7ollowing incomes though connected with land are not agricultural incomes Income from sale of wild grass* %am%oo and tree of spontaneous growth.
R& T K D* CIT 14 ITR !"!.
Income derived from land used for stone 5uarries.
R D N& CIT 15 ITR 235.
Income from land used for %ric) ma)ing or %ric) )iln purposes.
K* CIT 5 ITC 42 (P).
Income from land used for holding wee)ly !or other# mar)ets. 'here are certain incomes which are neither wholly agricultural in nature nor can they %e said to arise from %usiness. 6n the other hand they include some elements of agriculture and some those of %usiness. Profits of a sugar mill which grows its sugarcane can %e cited as one of the examples.
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