Is Agricultural Income Taxable? কৃষি উপাৰ্জ্জন কৰযোগ্যনে?

~Anup Sarma

Most of the people of India are engaged in Agriculural activities. About 70% of people are engaged in agriculture and derives income from it. However, the Government of India levy certain percentage on incomes known as Tax. That means any income are subjected to tax. The Direct Tax regime in India is guided by the Income Tax Act, 1961. There are certain exception to taxation on incomes. All incomes are not taxable, exceptions in the form of Exemption, Deduction,etc., are provided by the Government. Now the question arises whether Agricultural Income is taxable or not. The answer is ‘NO’. Agricultural Income is exempted from tax under Section 10(1) of the Act.

Article 246(Seventh Schedule) of Indian Constitution provides power to Union and State Governments to levy taxes. A list is given as-
List I- Only Union Government makes law
LIST II-Only State Government make law
LIST III- Both Union and State Government are entitled to make laws concurrently.
Article 265 of the Indian Constitution states that tax shall be levied or collected by an authority sanctioned by the Constitution and backed by the Income Tax Act 1961. There is two differentiation of Tax (a) Direct Tax (b) Indirect Tax [ Now known as GST].
The Agricultural Income is a part of Direct Taxes and are levied by State Government i.e. it comes under LIST II as Constitution empowers only State Government to levy taxes on agricultural incomes.
In India agricultural incomes are not taxable. These incomes are exempted under section 10(1) of the Act. This means that any person earning income through agricultural operations need not have to pay tax. Then which incomes will be considered as agricultural income. The Income Tax Act, 1961 has provided the definition of agricultural income as per section 2(1) which includes-
i) any income received as rent or as revenue by the owner, by giving the right to use the land for cultivation.
ii) any income earned from land, situated in India, by applying agricultural operations such as ploughing, sowing, harvesting, pruning etc,.
iii) any income by sale of agricultural produce raised by owner or received as rent-in-kind.
iv)if any process is employed by the cultivator or owner who receives produce as rent-in-kind,any income receive is agricultural income
v) any income from building used for agricultural operations. However,
a) building should be in the vicinity of he land
b) building should be used as store house or dwelling house by the cultivator or the receiver of rent-in-kind
Apart from defining the agricultural income, the Act has clearly given certain incomes which will be regarded as non-agricultural income.
(1) Income from sale of trees which were not grown with some aid or subsequent operation are not carried out. They are of spontaneous growth.
(2) Income from sale of wild grass
(3) Income from sale of gur or redefined sugar obtained through a manufacturing process.
(4) Income from sale of grinned cotton
(5) Interest received by money-lenders by way of agricultural produce.
(6) Remuneration for managing agricultural farm/property.
(7) Share received for supply of water as agricultural produce.
(8) Sale of fruits of trees which are of spontaneous growth.
(9) Income from fisheries.
(10) Royalty income from mine and brick making.
(11) Interest on arrear rent of agricultural land.
(12) Commission received for selling of agricultural produce of the tenants by the owner.
There are certain agricultural activities which are done by a person for selling it in the market and earn a profit out of it. We can say that they does the activities with profit motives. This incomes comprises of both agricultural and non agricultural incomes(Composite Income).Such cases arises especially for Agro-based industries. In such situation the income is bifurcated into agricultural and non -agricultural income since agricultural income is exempted. Rule 7, 7A, 7B and 8 of Income Tax Rules 1962 provides the method of bifurcation.
RULE 7- This is the general Rule applicable for all except Tea,Coffee and Rubber. As per this Rule, market value of the agricultural produce will be deducted from total income to get non-agricultural income. While the difference between market value of such produce and cost of cultivation is agricultural income.
The income of items shown in the table above will be bifurcated into agricultural and business income as per the percentage.The income which will form agricultural are exempted.
To conclude, we can say that any income from agricultural activities is not taxable in India, it is exempted from tax. And composite income will be dealt as per the Rules of Income Tax Rule 1962. In order to be an agricultural income it must be as such as defined by the Act.However, NITI Aayog has suggested to tax agricultural income. But the government of india has denied the chances of taxing agricultural income. It will be better if it is not tax as agricultural sector has not developed very much. Most of the farmers are still poor. And if taxed then it will further reduce there profits.
~Sri Anup Sarma, M.Com. 1st year, 2nd Sem, JB College, Jorhat; Cell: 9706550758.

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