Income Tax on Agricultural Income in India
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Chapter III of Income Tax Act, 1961 deals with 'Income which do not form part of Total Income'. Section 10(1) provides that 'agricultural income' shall not be included in computing the Total Income (Gross Total Income minus Deductions Chapter VIA).
In other words, since agricultural income is excluded from the ambit of the total income, income tax is not payable on agricultural income irrespective of the amount of the agricultural income.
However, although agricultural income is not taxable, a person having agricultural income exceeding rupees five thousand and having total income (excluding such agricultural income)greater than the basic exempted income tax slab, is required to pay higher income tax due to income tax treatment of agricultural income.
The Finance Acts 1973 for the first time provided for marginal increase of income tax and treatment of agricultural income. The Finance Acts of each year provide for this treatment and method of calculation of income tax.
The following two conditions must exist to attract this tax treatment:
1. The assessee has net agricultural income exceeding Rs. 5000
The method prescribed for calculating income tax is as under:
2. The assessee is having total income (excluding agricultural income) in excess of basic income tax slab that is not chargeable to income tax.
(a) Add both net agricultural income and total income
(excluding agricultural income).
(b) Calculate income-tax on the aggregate amount arrived at (a) above at the rates prescribed as if such aggregate income
were the total income.
(c) Add the basic exemption limit applicable to
he net agricultural income.
(d) Calculate income tax on the aggregate amount arrived at (c) above at the rates prescribed.
(e) Income Tax Payable shall be (b) minus (d)
