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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 exempt under section 10(1), 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 conditions and method for calculating income tax effect of agricultural income are given under the heading Rates of Income-Tax in Chapter-II of the relevant Finance Act(s).
As per the Finance Act, the following two conditions must exist to attract this tax treatment:
1.The assessee has net agricultural income exceeding Rs. 5000.
2. The assessee is having total income (excluding agricultural income) in excess of basic income tax slab that is not chargeable to income tax. (i.e. more than Rs. 250000/- for AY 2015-16 or 2016-17)
Let’s assume that Mr. A is having Total Income of Rs. 300000/- and net agricultural income of Rs. 80000/-. The total tax liability of Mr. A for AY 2015-16 r AY 2016-17, as per the method prescribed in Finance Act for calculating income tax shall be as under:
|
(a) |
Add both net agricultural income and total income (excluding agricultural income). |
380000 |
|
(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 |
13000 |
|
(c) |
Add the basic exemption limit applicable for the relevant AY to the net agricultural income. |
330000 |
|
(d) |
Calculate income tax on the aggregate amount arrived at (c) above at the rates prescribed |
8000 |
|
(e) |
Income Tax Liability shall be (b) minus (d) |
5000 |
|
(f) |
Rebate under section 87A |
2000 |
|
(g) |
Income Tax Payable |
3000 |
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Excel Calculator for Calculating Net Income Tax Payable on Agricultural Income in India
