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Income from farming can be taxing

Author: AN Shanbhag Sandeep Shanbhag/Wednesday, May 23, 2018/Categories: Tax, Expert View

Income from farming can be taxing

There are several leakages in India’s tax system which, if plugged, would make the current tax rates more reasonable. One such slip is accounting of agricultural income under income tax.

Agricultural income means (i) any income derived from land used for agricultural purposes, (ii) any rent or revenue derived from such land, (iii) any income derived from any process ordinarily employed to make the produce fit to be taken to the market, (iv) any income derived from any building situated on or in the vicinity of the land owned and occupied by the cultivator or receiver of rent-in-kind and is used as a dwelling house or store house or other out-building and (v) income derived from saplings or seedlings grown in a nursery.

Agricultural income is tax-free but is aggregated with the other income only for rate, if it exceeds Rs 5,000.

 

Rs

Normal Taxable Income

9,20,000

Add: Agri. income

2,30,000

Total                              `

11,50,000

Tax Thereon           1,57,500

 

Agri. Income

2,30,000

Add: Basic Exemption

 2,50,000

 

4,80,000

Less Tax Thereon      11,500

Tax payable            1,46,000

Education Cess            5,840

Total tax payable  1,51,840

Take the example in the adjoining table. Without agricultural income, tax would have been Rs 1,00,360 on an income of Rs 9,20,000. (Refer previous example). Agri income of Rs 2,30,000 pushes tax up by Rs 51,480 = (1,51,840 – 1,00,360). It is not as much tax-free as is the general impression. All the states levy tax on agricultural income. This is thankfully, deductible.

As per Sec. 21(A) the income from farm houses hired out for residence or for hosting parties will be treated as non-agricultural. Income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income, irrespective of whether the basic operations have been carried out on land or not.

Income tax thus clothed in different nomenclature is collected for the authorities to claim that the highest rate of tax in India is as low as 30%, but in actual practice, it is not.

The authors, A.N. and Sandeep Shanbhag, are leading financial advisors. Write to them at wonderlandconsultants@yahoo.com

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