What is Agriculture Income?

Introduction

Agriculture income refers to the income earned from agricultural activities such as cultivation of crops, plantation of trees, and rearing of livestock. This income is derived from the ownership or tenancy of land, and it includes the sale of agricultural produce, rent received from letting out agricultural land, and any other income earned from agricultural activities. Agricultural income is subject to tax under the Income Tax Act, but there are certain exemptions and deductions available to farmers to reduce their tax liability. The calculation of agriculture income is governed by specific rules and provisions under the Income Tax Act.

Types of Agricultural Income

There are different types of agricultural income, and they are classified based on the nature of the activity and the source of income. Some of the common types of agricultural income are:

1. Income from Cultivation of Land: This includes income earned from the sale of agricultural produce such as crops, fruits, and vegetables. It also includes income earned from the sale of livestock, poultry, and dairy products.

2. Income from Plantation: This includes income earned from the plantation of trees and shrubs for commercial purposes such as timber, fuelwood, and medicinal plants.

3. Income from Animal Husbandry: This includes income earned from rearing and selling livestock such as cows, buffaloes, goats, sheep, and poultry.

4. Income from Fisheries: This includes income earned from fishing activities such as cultivation of fish, prawns, and mollusks.

5. Income from Forestry: This includes income earned from forestry activities such as selling timber, fuelwood, and other forest produce.

6. Income from Agricultural Operations: This includes income earned from agricultural operations such as plowing, sowing, harvesting, threshing, and transportation of agricultural produce.

7. Income from Agricultural Wages: This includes income earned by agricultural laborers who work on someone else’s land or in someone else’s farm for wages or remuneration.

Agricultural Income in Income Tax

Agricultural income is a type of income that is earned from agricultural activities, and it is subject to tax under the Income Tax Act in India. The calculation of agricultural income and the taxability of such income are governed by specific rules and provisions under the Act.

Here are some important points to understand about agricultural income in income tax:

1. Exemption Limit: Agricultural income is exempt from income tax up to a certain limit. The exemption limit for agricultural income is Rs. 50,000 for the financial year 2021-22. This means that if your total agricultural income does not exceed Rs. 50,000 in a financial year, you do not have to pay any income tax on it.

2. Computation of Agricultural Income: Agricultural income is computed by adding all the sources of agricultural income earned during a financial year. This includes income from cultivation of land, plantation, animal husbandry, fisheries, forestry, and agricultural operations. However, certain expenses related to agriculture such as seed, fertilizer, and pesticide costs are allowed as deductions while computing agricultural income.

3. Tax Rates: Agricultural income is taxed at different rates depending on the total income of the taxpayer. If the total income (including agricultural income) is less than or equal to Rs. 500,000, then the applicable tax rate is 5%. If the total income exceeds Rs. 500,000 but does not exceed Rs. 12,50,000, then the applicable tax rate is 20%. If the total income exceeds Rs. 12,50,000, then the applicable tax rate is 30%.

4. Income from Letting Out Agricultural Land: If you earn rental income from letting out agricultural land, then such income is also subject to tax under the Income Tax Act. The computation and taxability of such income are governed by specific rules and provisions under the Act.

5. Deductions: Certain deductions are allowed while computing agricultural income to reduce the taxable amount. These deductions include expenses related to agriculture such as seed, fertilizer, and pesticide costs, interest on loans taken for agriculture purposes, and depreciation on agricultural machinery and equipment.

Taxation of Agricultural Income

Taxation of agricultural income is a complex topic in India. According to the Income Tax Act, 1961, agricultural income is exempt from income tax under section 10 (1) if it is received in India. However, if the agricultural income exceeds Rs. 5,000 per year and the non-agricultural income is more than the basic exemption limit, then the agricultural income is partially integrated with the non-agricultural income for the purpose of tax calculation. This means that the agricultural income is added to the non-agricultural income to determine the tax slab and then the tax is reduced by the amount of tax on the sum of the basic exemption limit and the agricultural income. This method is known as the partial integration method.

For example, suppose Mr. X has an agricultural income of Rs. 4,00,000 and a non-agricultural income of Rs. 10,00,000 in the financial year 2023-24. Assuming he is below 60 years of age, his tax liability would be calculated as follows:

Tax on Rs. 14,00,000 (agricultural income + non-agricultural income) = Rs. 2,32,500
Tax on Rs. 6,50,000 (basic exemption limit + agricultural income) = Rs. 42,500
Net tax liability = Rs. 2,32,500 – Rs. 42,500 = Rs. 1,90,000
Add cess @ 4% = Rs. 1,90,000 + Rs. 7,600 = Rs. 1,97,600

This method of taxation is applicable only to individuals, Hindu undivided families, associations of persons, bodies of individuals and artificial juridical persons. It is not applicable to partnership firms, LLPs, companies, cooperative societies or local authorities. It is also not applicable to income from long-term capital gains, short-term capital gains under section 111A or casual income.

If the agricultural income is derived from the sale of agricultural produce after processing, then the income is bifurcated into agricultural income and business income based on the fair market value of the produce before processing and the cost of the produce. The agricultural income is exempt and the business income is taxable under the head profits and gains from business and profession.

Representation of Agriculture Income In Income Tax Returns

In India, agriculture is an important sector that contributes significantly to the country’s economy. The income earned from agricultural activities is treated differently from other sources of income for tax purposes. Here’s how agriculture income is represented in income tax returns:

1. Computation of Agriculture Income:

The first step in representing agriculture income in income tax returns is to calculate the total income from agricultural activities. This includes income from farming, livestock rearing, forestry, and other related activities. The calculation of agriculture income is done separately from other sources of income, such as salary, capital gains, and business profits.

2. Deduction for Agricultural Expenses:

The next step is to deduct all the expenses incurred in agricultural activities from the total agriculture income. These expenses can include costs such as seeds, fertilizers, pesticides, wages of agricultural laborers, and repairs and maintenance of agricultural equipment. The deduction for agricultural expenses is allowed under Section 10(1) of the Income Tax Act, 1961.

3. Exemption Limit:

Income up to a certain limit from agricultural activities is exempt from tax. The exemption limit varies from year to year and is announced by the Finance Minister in the annual budget. For the financial year 2021-22, the exemption limit for agriculture income is Rs. 50,000 for individuals and HUFs (Hindu Undivided Families). For farmers who are engaged in farming operations on a regular basis and have a total land holding of not more than 2 hectares (5 acres), the exemption limit is Rs. 2 lakhs for the financial year 2021-22.

4. Declaration of Agriculture Income:

After calculating the net agriculture income and deducting any exemptions, this amount needs to be declared in Schedule F (Form ITR-4) of the income tax return form (ITR). Schedule F is a separate schedule that needs to be filled for computing agricultural income separately from other sources of income. This schedule requires details such as the name and address of the farmland, crop yield, and expenses incurred during the financial year.