Treatment of Taxation for “Agriculture Income” – Complete Guide

Agriculture Income Tax Calculation Excel Sheet

Major Portion of Indian Economy includes “Agriculture portion”.

What would be the treatment of income tax on agricultural income?

Most of the people still including farmers are unaware of the taxation system and ignore to fill income tax return.

Although Agriculture income is exempt under section 10(1) of the Income-tax Act.

Income incurred from agriculture up to ₹ 5000 in the financial year is totally exempted and will not be accounted for taxation purposes.

Also Read: How To Check Income Tax Refund Status? – Simple steps by step guide.

The income tax department under section 2(1A) explains the meaning of agriculture income.

Income from agriculture land from farming or rent derived from engaging the land for farming in India. Agriculture income also includes the processing of agriculture produces ready to sell in the open market.

Agriculture income also includes the income derived from the building of immediate vicinity with the agriculture land.

How you can predict your income as agriculture income u/s 2(1A)?

It is very important to understand whether your income is an agricultural income or not.

what is agricultural income and its types

Here is some explanation:

  1. Any agriculture revenue from the land in India.
  2. Any rent received from the land used for agriculture purposes.
  3. Income from a farmhouse which is in relation to the land you own and which may be used as a storehouse or a dwelling unit.
  4. Income from sales of seed.
  5. Income from nursery operation (selling of plants, flowers seeds)
  6. A share of profit of a partner from a firm engaged in agricultural operations.
  7. Any interest earned from the partner company involves in agriculture purposes.

Some of the example, which are not agriculture income

  • Poultry farming, bee hiving, dairy farming is not considered as agriculture income.
  • Income from milk products like butter and cheese making.
  • Income of salt production on the land near the sea.

Also Read: Allow me to share awesome information about PPF (Public Provident Fund)

There are two questions still unclear:

  • Is Agricultural Income Taxable?
  • How is agriculture income taxable?

Under section 2(1A) of the income tax act, income from agriculture is exempted by the central government of India, the State government must levy the tax on agriculture income.

If the agriculture income is less then ₹ 5000 in the financial year is exempted.

According to indiamoney.com – When is agricultural income taxed? States levy tax on agricultural income if income exceeds Rs 5,000 a year and if total income excluding agricultural income exceeds the basic tax exemption slab.

How to calculate income tax on agricultural income

Calculation of agriculture income is very easy and transparent, it holds two scenarios of partly agricultural income:

  • Net agriculture income must exceed ₹ 5000 in the financial year (agricultural income tax exemption limit).
  • Total income excluding agriculture income must exceed the total exemption limit.

Making it simplify:

If your total income is more then ₹ 2,50,000 (for individual less then 60 years). On the other hand, if your total income derived from agriculture income, the income will be fully exempted.

Step by Step explanation of how to calculate agricultural income tax with example:

I like to share my personal example of my brother in law (Ashutosh), He uses to rent his land for agriculture purpose and also earn from some other sources.

Ashutosh a 27 years old (a young boy), earns from agriculture income ₹ 2,40,000 and from non-agriculture income ₹ 6,00,000, In totality ₹ 8,40,000, agriculture income comes out from letting out agriculture land.

Let’s start calculating Ashutosh tax liability:

Step 1: First Add Agriculture income and non-agriculture income.

computing agriculture income

Step 2: Now its time to check which Tax slab your income belongs.

Income tax slab

The Tax slab mentioned above will be changed for senior citizens and super senior citizens.

Ashutosh income (agriculture + non agriculture) is ₹ 8,40,000, as we see clearly it falls under (INR 5,00,001 – INR 10,00,000) Slab.

That means Ashutosh is liable to pay income tax 20 % of ₹ 8,40,000 i.e. ₹ 1,68,000.

Also Read: Capital Gains Sale of Agricultural Land

Step 3: Now as we all known Ashutosh enjoy tax exemption limit of ₹ 2,50,000 (the limit will be changed according to the age). So we have to add the exemption limit to the pure agriculture income which is ₹ 2,40,000.

₹ 2,50,000 + ₹ 2,40,000 = ₹ 4,90,000 this amount falls under (INR 2,50,001 – INR 5,00,000) Slab.

Step 4: Is very important, in this step, and we have to calculate the tax amount with the same percentage that comes out in step 3.

Sounds difficult.

The calculation would be:

10 % of ₹ 4,90,000 = ₹ 49,000

Step 5: Final Step (You have to substruct the amount derived in Step 4 from Step 2)

Ashutosh is finally liable to pay income tax of ₹ 1,68,000 minus ₹ 49,000 i.e. ₹ 1,19,000

Also Read: Fill Income Tax return Form “IV” u/s 44AD, 44ADA, 44AE

Calculation of tax on agricultural income for seniors citizens

The majority of a senior citizen above 60 years is generally involved in agriculture income in villages, the above calculation scenario of Ashutosh does not align the calculation for senior citizen because of the Income-tax slab is different for a senior citizen.

I once again share my personal example of my father in law, Ashutosh father (Shri Krishna Narayan Gupta). He is 62 years old (senior citizen) still young [wp-svg-icons icon=”cool” wrap=”i”] earns from agriculture income ₹ 8,50,000 and from non-agriculture income ₹ 2,00,000, In totality ₹ 10,50,000, agriculture income comes out from letting out agriculture land and non-agriculture comes out from letting out property for rent.

Let’s start calculating tax liability of Shri Krishna Narayan:

Step 1: First Add Agriculture income and non-agriculture income.

computing agriculture income senior citizen

Step 2: Now its time to check which Tax slab (2018-2019) your income belongs.

Tax slab senior citizen

The calculation of tax is as similar as the calculation of individuals less than 60 years old (example above).

Th income (agriculture + non-agriculture) is ₹ 10,50,000, as we see clearly it falls under (Income more than INR 10,00,000) Slab.

The Tax liability comes to be 20 % of ₹ 10,50,000 i.e. ₹ 2,10,000

Also Read: Why to Pay interest u/s 234A, 234B & 234C “with example” under Income tax act?

Step 3: Now as we all known to be a senior citizen, he enjoys tax exemption limit of ₹ 3,00,000. So we have to add the exemption limit to the pure agriculture income which is ₹ 8,50,000.

₹ 3,00,000 + ₹ 8,50,000 = ₹ 11,50,000 this amount falls under (Income more than INR 10,00,000) Slab.

Step 4: Is very important, in this step we have to calculate the tax amount with the same percentage comes out in step 3.

The calculation would be:

20 % of (₹ 11,50,000 ) = ₹ 2,30,000

Step 5: Final Step (You have to substruct the amount derived in Step 4 from Step 2)

Finally liability to pay income tax of ₹ 2,10,000 minus ₹ 2,30,000 i.e. ₹ (-) 20000 i.e. No Tax

Note: If we suffer losses in agriculture these losses can be set off against the agricultural profits for the next 8 years.

The two examples above for individual and senior citizens help you calculate the tax value if your income includes agriculture.

Also Read: Fill Income tax return ITR1 in 5 Minutes: The Complete Guide (2018-19)

Which ITR do I have to file for income from agriculture?

As we have discussed above if your agriculture income is more than ₹ 5,000 along with some other income (salary, business or any other sources), you have to opt for ITR 2.

ITR 2 form consists of “schedule EI” which was specially designed for the input data of agriculture income.

schedule EI ITR2

One should always remember to take benefit of the income tax department instead of misusing the relief to farmers against agriculture income.

Also Read: Tax relief under section 89(1) on salary arrears

Agriculture Income Tax Calculation Excel Sheet

Download Excel Spreadsheet for multiple years 

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