How To Calculate Agriculture Income Tax?

The discovery of agriculture was the first big step towards a civilized life.

                                                                                                                                                     -   Arthur Keith

For several decades our country was an economy, dependent solely on agriculture. Farmers were the life blood of the Nation. Today, India is a service based economy. An IT Superpower. Yet, agriculture is still very important for the growth of the Nation. Just take a look at inflation….A few years ago, inflation looked out of control. The main culprit….soaring food prices. With prices of dal, vegetables and fruits going through the roof, India is looking back to agriculture.Now to the big question….What is agricultural income? You get rent/revenue from land in India, used for agricultural purposes. You get money from the commercial sale of agricultural produce, from agricultural land. All this is agricultural income.

Remember: You have to use the land for agricultural operations. You have to make some effort, so that crops sprout from the land. You have to cultivate the land.

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How to calculate agriculture income tax?

You do not have to pay income tax on your agriculture income, irrespective of the amount of agricultural income you earn. Isn’t this a good enough reason to take up farming? The Central Government cannot charge tax on agriculture income. The State Government can charge tax on agriculture income. However if your agricultural income is within INR 5,000 a year, no tax will be charged.

How is agriculture income taxed?

Let’s go through these important points, before we get down to calculations:

• The Government has found an indirect way, to make sure you pay tax on your agricultural income. This is a concept known as partial integration of taxes.

The two conditions you have to satisfy before your income is taxed under partial integration:

• Your net agricultural income should exceed INR 5,000 a year.
• Your non agricultural income should exceed the basic tax exemption limit.

If your annual income is more than INR 2,50,000  a year (male/female under 60 years), If your annual income is more than INR 3,00,000  a year (senior citizen between 60 years to 80 years) and If your annual income is more than INR 5,00,000 a year, (super senior citizen above 80 years),  your income is taxed under partial integration.

Learn how agriculture income is taxed

Let’s understand how agriculture income is taxed with a simple example: Nitish who is 40 years, works in a garment firm and earns a salary of INR 7 Lakhs a year. Nitish also earns INR 2.4 Lakhs a year, as agricultural income from renting out agricultural land. Let’s calculate, Nitish income tax liability.

STEP 1:

Add          agriculture income + non agriculture income

• Nitish earns INR 2.4 Lakhs a year as agriculture income and INR 7 Lakhs a year, as non agriculture income.

Add          INR 2.4 Lakhs   +   INR 7 Lakhs = INR 9.4 Lakhs.

STEP 2:

Compute tax on the aggregate income.

Income Tax Slab For FY 2016-17:

• Nitesh total income (agricultural + non agricultural) is INR 9.4 Lakhs. Nitesh falls in the INR 5,00,001 to INR 10,00,000 slab. His income is taxed at 20%. Nitesh has to pay an income tax of INR 1,13,000.

Amount of income tax Nitesh pays = INR 1,13,000.

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STEP 3:

Add the basic tax exemption limit for the relevant financial year FY 2016-17, to the net agricultural income.

• Nitish enjoys a basic tax exemption of INR 2.5 Lakhs. He also earns an agricultural income of INR 2.4 Lakhs.
• The aggregate amount is INR 2.5 Lakhs + INR 2.4 Lakhs = INR 4.9 Lakhs.

STEP 4:

Calculate income tax on the aggregate amount which you have arrived at in STEP 3

You have to calculate income tax on the aggregate amount of INR 4.9 Lakhs shown in STEP 3.

• The basic exemption limit is INR 2.5 Lakhs.

You have to calculate income tax on INR 4.9 Lakhs – INR 2.5 Lakhs = INR 2.4 Lakhs. This amount is taxed at 10%.

Income tax on aggregate amount = INR 2.4 Lakhs @ 10% = INR 24,000.

STEP 5:

Deduct the amount calculated in STEP 4 from the amount calculated in STEP 2.

To get Nitish income tax liability, you have to deduct the income tax on aggregate amount shown in STEP 4 from amount of income tax Nitesh pays in STEP 2.

This is INR 1,13,000  -  INR 24,000  =  INR 89,000.

STEP 6:

You have to subtract the rebate you get under Section 87A.

If your total income does not exceed INR 5 Lakhs a year, you get an income tax rebate of INR 5,000 under Section 87 A. Nitish earns a salary of INR 7 Lakhs a year and is not eligible for the rebate.

STEP 7:

You have education cess at 2% and secondary and higher education cess at 1%. The total cess is 3%.

Nitish has to pay cess of 3% on the income of INR 89,000, which is INR 2,670. Nitish has to pay a total income tax of INR 91,670.

Yes….The Government has even found a way of taxing your agricultural income. Trust the Government to do something different.

Be Wise, Get Rich.