Agriculture Income

Agriculture income is exempt under the Indian Income Tax Act. This means that income earned from agricultural operations is not taxed. The reason for exemption of agriculture income from Central Taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Legislature.

While computing tax on non-agricultural income agricultural income is also taken into consideration and when we compute tax taking agriculture income into consideration we pay tax on agriculture income also.

Tax on Agricultural Income In India is computed as follows:-

Step 1: Add non-agricultural income with net agricultural income.

Step 2: Compute Tax on Step 1 (not including Cess)

Step 3: Add net agricultural income and the maximum exemption limit available to the assessee.

Step 4: Compute tax on Step 3. (not including Cess)

Step 5: Compute Net Tax Payable ( Step 2 – Step 4)

Step 6: The sum so arrived at shall be increased by education cess @2% and secondary and higher education cess @1%.

This can be illustrated as follows:-

An assesse has his taxable income of Rs. 480000 and agriculture income of Rs. 50000.

Tax on his income will be computed as follows:-

 Total income = Rs 530000

 Tax =(30000*20%) + (500000-200000)*10%

Tax = 6000+30000= Rs 36000

 Basic exemption limit+ agriculture income =200000+50000 =250000

 Tax thereon = Rs50000*10%= Rs5000

 Net tax to be paid = 36000-5000 = Rs. 31000

Now if we compute tax on only on Rs 480000 it would be Rs. 28000.

Therefore the increased tax liability of Rs 3000 (31000-28000) is nothing but tax on agriculture income.

Therefore it can be said that agriculture income is not really exempt. The tax is levied in indirect way and this concept is known as partial integration of taxes.

It is applicable to individuals, HUF, unregistered firms, AOP, BOI and artificial persons. Two conditions which need to satisfy for partial integration are:

1. The net agricultural income should exceed Rs. 5,000 p.a., and

2. Non-agricultural income should exceed the maximum amount not chargeable to tax.