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40. Make Hay from Income Tax- Exempt Agricultural Income

One of the main items of income completely exempt from income tax, under the provisions of Section 10(1) of the Income Tax Act, is agricultural income. It is no doubt true, that in the case of individuals, agricultural income is added to the total income for rate purposes. However, where agricultural income does not exceed ` 5,000, it is not to be aggregated with other total income even for rate purposes. Further, even where the agricultural income exceeds 5,000, it is not liable for aggregation, if the total income of the individual does not exceed ` 2,00,000 in the FY 2012-2013. Thus, in the case of a male individual whose total income (excluding agricultural income) is not liable to income tax, that is, where the same is below ` 2,00,000 for the relevant previous year, the entire agricultural income, irrespective of its quanturn, is completely exempt from income tax. Therefore, agricultural income should normally be received by such a male member of the family whose taxable income is below ` 2,00,000.

What Constitutes Agricultural Income

Hence for saving income tax, one should know the meaning of agricultural income. Agricultural income, under the provisions of Section 2(1 A) of the Income Tax Act, means:


(a)     any rent or revenue derived from land situated in India and used for agricultural purposes;


(b)     any income derived from such land by (i) agriculture, i.e., by actual cultivation of land and by means of certain basic operations in agriculture; or (ii) by the performance of some agricultural process ordinarily employed by the cultivator, etc. to render the produce fit to be taken to market; or (iii) by the sale of the produce for which no other process, other than the one mentioned above has been employed; and


(c)     any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land or kept by the cultivator as the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process as mentioned above is carried on, subject to certain conditions about the building being on or in the vicinity of the land, etc.

Thus, where a person derives a substantial agricultural income and keeps his total income below
` 1 lakh by devoting more time, energy and money on agriculture and less on other-income earning pursuits, he would be able to effect a lot of income tax saving.

Part IV of the Finance Act provides Rules for computation of net agricultural income. It is provided in these rules that the income other than derived from any building required as a dwelling unit by the receiver of the rent, etc. would be computed as if it were income chargeable to income tax under the head “Profits and Gains of Business or Profession.” The income derived from any building required as a dwelling house by the receiver of the rent shall be computed as if it were chargeable under the head “Income from House Property”. In case the computation of Agricultural Income of the previous year is a loss, then such loss shall be set off against the income of the assessee from agricultural income. The tax levied by the State Government shall be deducted in computing agricultural income. It is also provided that any person deriving any agricultural income from any source has been succeeded in such capacity by another person, otherwise than by inheritance, then such person shall not be entitled to set-off the loss.

In case the net result of the computation made in accordance with the rules is a loss, then the loss so computed shall be ignored and the net agricultural income shall be deemed to be nil.

Finally, if is provided in these Rules that the provision relating to procedure for assessment shall apply in relation to computation of net agricultural income of the assessee as they apply in relation to the assessment of the total income. The powers which are available to the Income Tax Officer for the purposes of assessment of total income would be available for computing the net agricultural income of the assessee.

For F.Y. 2012-13, women tax payers having total income upto
` 2,00,000 would not be liable for aggregation of agricultural income. Similarly, for senior citizens there would be no aggregation of agricultural income if the total income of a senior citizen is upto ` 2,50,000. Likewise, a very senior citizen of 80 years and above would not be liable for aggregation of agricultural income if his income is upto ` 5,00,000

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