Chapter 13 AGRICULTURAL INCOME Points to Remember Agricultural Income [Sec.2(1A)]: Rent or Revenue derived from Agricultural Land Income derived from Agricultural Land through Agriculture Income derived by sale of agricultural produce, or by the process ordinarily employed to render the produce fit for the market and sale, by a Cultivator or Receiver of rent in kind. Income from a Farm House subject to conditions. Tax Computation Steps: Step Description 1 Compute Agricultural Income + Total Income 2 Compute Tax on Step 1 3 Compute Agricultural Income + Maximum Amount not chargeable to tax (Basic Exemption) 4 Rebate for Agricultural Income (Tax on Step 3) 5 Compute Net Tax Payable (Step 2 Step 4) 6 Compute Education Cess at 2% on Total Tax Payable as per Step 5 7 Compute Secondary and Higher Education Cess (SHEC) at 1% on Total Tax Payable as per Step 5 8 Compute Net Tax Payable (Step 5 + Step 6 + Step 7) Growing and Manufacturing or Rubber/Coffee/Tea: Computation of Agricultural and Non Agricultural Income is done on the basis of percentage of profits of business. Rule Description Agricultural Income Business Income 7A Income from growing and manufacture of Rubber 65% of POB 35% of POB 7B Income from grown and cured Coffee 75% of POB 25% of POB 7B Income from grown and cured, roasted and grounded Coffee 60% of POB 40% of POB 8 Income from growing and manufacture of Tea 60% of POB 40% of POB 13.1
Padhuka s Revision Guide for Taxation CA IPCC / Inter AY 2014 2015 Question No.1 What is Agricultural Income? Explain. [M 88, M 09] 1. Conditions: Under IT Act, to be classified as Agricultural Income, the following two conditions should be satisfied (a) The Income should be derived from land situated in India, and (b) The Land should be used for agricultural purposes. 2. The following are Agricultural Income from such land (a) Any rent or revenue derived from such land. (b) Income derived from such land through agriculture. (c) Income derived by sale of agricultural produce, or by the process ordinarily employed to render the produce fit for the market and sale, by a Cultivator or Receiver of rent in kind. (d) Income from Farmhouse, if it fulfills the following conditions (i) The building is on or in the immediate vicinity of the Agricultural Land. (ii) It is occupied by the Cultivator or Receiver of Rent or Revenue, and (iii) It is used as Dwelling House or Storehouse or Outhouse. (iv) The Land is (i) assessed to Land Revenue, or (ii) if not assessed to Land Revenue (A) Not situated within Municipality / Municipal Corporation / Notified Area Committee / Town Area Committee / Town Committee / Cantonment Board, etc. which has a population of not less than 10,000, or (B) Not situated in any area within the distance, measured aerially not being more than 2 kilometres, from the local limits of any Municipality or Cantonment Board referred in Item (A) and which has a population of more than 10,000 but not exceeding 1 lakh, or not being more than 6 kilometres, from the local limits of any Municipality or Cantonment Board referred to in Item (A) and which has a population of more than 1 lakh but not exceeding 10 lakh, or not being more than 8 kilometres, from the local limits of any Municipality or Cantonment Board referred to in item (A) and which has a population of more than 10 lakh., Note: Income derived from any building or land from letting out for residential purposes, or for business or profession or by transfer of land is NOT an agricultural income. [Expln 2] For Sec.2(1A)(c)(ii) Population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. [Expln 4] Question No.2 Agricultural Income is exempt from Income Tax, but the Income Tax Act indirectly collects tax on Agricultural Income. Explain. [M 95, M 05, N 11] Agricultural Income is exempt from Income Tax u/s 10(1), but the Income Tax Act indirectly collects tax on Agricultural Income. This is done in the following manner 1. Applicability: The method of aggregation is applicable to Individuals, HUF, AOP & BOI, and not applicable to Firms and Companies. 2. Minimum Agricultural Income: It is applicable to Assessees whose Agricultural Income exceeds ` 5,000. 3. Minimum Total Income: The Total Income under IT Act should exceed the maximum amount not chargeable to tax. 13.2
Agricultural Income 4. Procedure applicable in computation of tax Step Description 1 Compute Agricultural Income + Total Income 2 Compute Tax on Step 1 3 Compute Agricultural Income + Maximum Amount not chargeable to tax (Basic Exemption) 4 Rebate for Agricultural Income (Tax on Step 3) 5 Compute Net Tax Payable (Step 2 Step 4) 6 Compute Education Cess at 2% on Total Tax Payable as per Step 5 7 Compute Secondary and Higher Education Cess (SHEC) at 1% on Total Tax Payable as per Step 5 8 Compute Net Tax Payable (Step 5 + Step 6 + Step 7) Question No.3 The Total Income of Mrs. Z computed for the Assessment Year 2014 2015 is ` 6,30,000 which includes the following: Long Term Capital Gains ` 90,000 Winning from Lotteries ` 60,000 Short Term Capital Gains covered by Sec. 111A ` 30,000 Agricultural Income earned by her was ` 1,50,000. Compute the tax payable by Mrs. Z. Assessee: Mrs. Z Previous Year: 2013 2014 Assessment Year: 2014 2015 Computation of Tax Payable Particulars ` ` Total Income of the Assessee 6,30,000 Add: Agricultural Income 1,50,000 7,80,000 Tax on the above Income at 20% on Long Term Capital Gains (` 90,000 20%) 18,000 at 30% on Winnings from Lotteries (` 60,000 30%) 18,000 at 15% on Short Term Capital Gain u/s 111A (` 30,000 15%) 4,500 Balance Income at Normal Rates (` 7,80,000 ` 90,000 ` 60,000 ` 30,000) [` 30,000 + (` 6,00,000 ` 5,00,000) 20% ] 50,000 90,500 Less: Rebate for Agricultural Income Agricultural Income + Basic Exemption (` 1,50,000 + ` 2,00,000) 3,50,000 Tax on above (` 3,50,000 ` 2,00,000) 10% (15,000) Net Tax Payable 75,500 Add: Education Cess 2% 1,510 Add: Secondary and Higher Education Cess at 1% 755 Net Tax Payable (Rounded Off) 77,770 Question No.4 Mr. Tony has estates in Rubber, Tea and Coffee. He derives income from them. He has also a nursery wherein he grows plants and sells. For the previous year ending 31.03.2014, he furnishes the following particulars of his sources of income from estates and sale of Plants. You are requested to compute the taxable income for the Assessment Year 2014 2015. 13.3
Padhuka s Revision Guide for Taxation CA IPCC / Inter AY 2014 2015 (a) Manufacture of Rubber ` 5,00,000 (b) Manufacture of Coffee grown and cured ` 3,50,000 (c) Manufacture of Tea ` 7,00,000 (d) Sale of Plants from Nursery ` 1,00,000 Assessee: Mr. Tony Previous Year: 2013 2014 Assessment Year: 2014 2015 From the words Mr. Tony has estates, it is presumed that he had grown Tea, Coffee and Rubber, and also Plants in his Estates, and the amount given is the Profits of the Business. Computation of Taxable Income is as under Particulars Agricultural Income (`) Non Agricultural Income (`) Growing & Manufacture of Rubber [Rule 7A] 5,00,000 65% = ` 3,25,000 5,00,000 35% = ` 1,75,000 Grown and Cured Coffee [Rule 7B] 3,50,000 75% = ` 2,62,500 3,50,000 25% = ` 87,500 Growing and Manufacture of Tea [Rule 8] 7,00,000 60% = ` 4,20,000 7,00,000 40% = ` 2,80,000 Growing & Sale of Plant by Nursery ` 1,00,000 Total ` 11,07,500 ` 5,42,500 Taxable Income Exempt u/s 10(1) ` 5,42,500 Question No.5 Mr. Asim, a 60 year old individual, is engaged in the Business of Roasting and Grounding of Coffee, derives Income ` 10 Lakhs during the Previous Year 2013 2014. Compute the Tax payable by him assuming he has not earned any other Income during the Previous Year 2013 2014. Assessee: Mr. Asim Previous Year: 2013 2014 Assessment Year: 2014 2015 Computation of Tax Payable Particulars ` Profit and Gains from Business or Profession (Note 1) 10,00,000 Gross Total Income 10,00,000 Less: Deduction under Chapter VI A Nil Total Income 10,00,000 Tax Liability = 25,000 + (10,00,000 5,00,000) 20% 1,25,000 Add: Education Cess @ 2% 2,500 Add: Secondary Higher Education Cess @ 1% 1,250 Total Tax Liability 1,28,750 Note: Computation under Rule 7B, shall be applicable only if Coffee is Grown, Cured, Roasted and Grounded by the Sellers in India. Hence the Income from Roasting and Grounding of Coffee shall be computed under the Head Profit and Gains from Business or Profession. 13.4
Additional Questions for Practice Note: Detailed Answers to these Questions can be obtained from Padhuka s Students Referencer on Income Tax, Service Tax and VAT CA IPCC/Inter Agricultural Income 1. The Total Income of Arvind, aged 76 years, computed for Assessment Year 2014 2015 is ` 9,00,000 which includes Long Term Capital Gains on land of ` 90,000 and winning of lotteries ` 60,000. He contributed ` 1,80,000 towards PPF during previous year. Compute the Tax Payable assuming his Agricultural Income for the Previous Year was ` 1,50,000. [Answer: Total Tax (Normal + Special Rates) = ` 1,41,000, Rebate for Agricultural Income = ` 15,000, Net Tax Payable including Cess = ` 1,29,780] 2. For the Assessment Year 2014 2015, Net Agricultural Income of an Assessee is ` 2,58,000 and Non Agricultural Income is ` 4,95,000. Find out the tax if the Taxpayer is (a) an Individual, (b) an HUF, (c) a Firm, and (d) an Indian Company. [Answer: If Assessee is Individual (other than Senior / Very Senior Citizen) or HUF, Rebate for Agricultural Income = ` 25,800, Net Tax Payable including Cess = ` 56,440. If Assessee is a Firm or an Indian Company, Net Tax Payable including Cess = ` 1,52,960] 3. X Limited, grows sugarcane to manufacture sugar. The data for the Previous Year 2013 2014 is as follows ` (a) Cost of Cultivation of Sugarcane 6,00,000 (b) Market Value of Sugarcane when transferred to factory 10,00,000 (c) Other Manufacturing Cost 6,00,000 (d) Sales of Sugar 25,00,000 (e) Salary of Managing Director who looks after all operations of the Company 3,00,000 Determine the Income of the Company. [Answer: Business Income = ` 6,00,000, Agricultural Income = ` 4,00,000] 4. Miss Vivitha, a Resident and Ordinarily Resident in India, has derived the following Income from various operations (relating to Plantations and Estates owned by her) during the year ended 31.03.2014. You are required to compute the Business Income and Agricultural Income of Miss Vivitha for Assessment Year 2014 2015. Particulars ` (a) Income from sale of Centrifuged Latex processed from rubber plants grown in Darjeeling. 3,00,000 (b) Income from sale of Coffee grown and cured in Yercaud, Tamil Nadu. 1,00,000 (c) Income from sale of Coffee grown, cured, roasted and grounded, in Colombo. Sale Consideration 2,50,000 was received at Chennai. (d) Income from sale of tea grown and manufactured in Simla. 4,00,000 (e) Income from sapling and seedling grown in a nursery at Cochin. Basic operations were not carried out by her on land. 80,000 [M 09] [Answer: Total Non Agricultural (i.e. Business) Income = ` 5,40,000, Total Agricultural Income = ` 5,90,000] 5. Mr. Tenzingh is engaged in composite business of growing and curing (further processing) Coffee in Coorg Karnataka. The whole of coffee grown in his plantation is cured. Relevant information pertaining to year ended 31.03.2014 are given below: Particulars ` Particulars ` WDV of Car as on 01.04.2013 3,00,000 Expenditure for curing Coffee 3,00,000 WDV of machinery as on 31.03.2013 (15% rate) 15,00,000 Sale Value of cured Coffee 22,00,000 Expenses incurred for growing Coffee 3,10,000 Besides being used for agricultural operations, the car is also used for personal use; disallowance for personal use may be taken at 20%. The expenses incurred for car running and maintenance are ` 50,000. The machines were used in coffee curing business operations. Compute the income arising from above activities for AY 2014 2015. Show the WDV of the assets as on 31.03.2014. [M 10] [Answer: Total Non Agricultural (i.e. Business) Income = ` 3,20,000, Total Agricultural Income = ` 9,60,000, WDV of Car and Machinery on 31.03.2014 are ` 2,55,000 and ` 12,75,000 respectively.] 13.5
Padhuka s Revision Guide for Taxation CA IPCC / Inter AY 2014 2015 6. The following is the P&L A/c for the year ended 31.03.2014 of Western Sugar Mills, of which Shri. Daga is the owner Particulars ` Particulars ` To Manufacturing Expenses 7,01,000 By Sale of Sugar & Molasses 11,62,300 To Excise Duty 92,795 By Rent from Agricultural Land 950 To Establishment Charges 49,200 By Revenue from Fisheries 4,000 To Fine paid to Excise Dept 2,000 By Sale Proceeds from Canes 6,05,055 To Salary and Wages 1,21,445 By Profit on Sale of Motor Truck 3,230 To General Charges 16,750 To Interest on Bank Loan 21,000 To Daga s Remuneration 38,750 To Depreciation 91,000 To Income Tax 25,000 To Cultivation Expenses 4,37,500 To Net Profit 1,79,095 Total 17,75,535 Total 17,75,535 Compute the income from business of Shri Daga from the Sugar mill for the Assessment Year 2014 2015 after taking the following information into consideration. (a) Sale Proceeds of Cane include ` 5,32,000 on account of Cane produced and consumed in the Factory, and debited to Manufacturing Expenses, the Average Market Price of such Cane being ` 6,00,000. (b) The Motor Truck sold during the year for ` 7,230 was purchased in the past for ` 19,000. Depreciation claimed in respect thereof in past assessment was ` 15,000. (c) General Charges include (a) ` 2,000 being the legal expenses incurred in defending a suit regarding the Company s title to certain agricultural lands, and (b) ` 10,000 paid to Daga s son who is an employee in the Sugar Mill, for a trip to Hawaii to study modern methods of manufacture. (d) Depreciation in respect of all assets has been ascertained at ` 50,000 as per Income Tax Rules. [N 98] [Answer: Business Income = ` 44,110] 13.6