Dear all,

Mansha is right as only the expenses which are directly related to the earning of a particular income can be allowed as deduction from that income but interest on loan taken for purchase of the agricultural land is in no way a direct expense.

This is according to my view. Comments and suggestions are most welcomed

Hi Mansha

I do agree with your point that expense of exempt source will not be allowed, but in this case, we just calculate the net income from agriculture activities for the purpose of partial integration.

U/s 36(1)(iii) If capital is borrowed for acquiring a capital asset, then the interest liab after the asst put to use will be allowed as a deduction. Further agricultural income u/s 2(1A)(b) will be computed after applying sec 30,31,32,36,37,40 etc.

So for calculation of agriculture income we will consider the interest ( assuming int after the asset put to use).

Haan thats rightly said by Mansha interest on loan which is not directly related with the agricultural income can not be claimed as expenditure...like rent from land is also included in agriculture income but expenditure incurred for such rent cannot be allowed as expenditure.
 

Deduction cannot be claimed from regular business income as per Sec14A.  However Loan is specifically taken for the purpose of Purchase of Agricultural Land on which agricultural activity has been carried out.

However for the purporse of clubbing, Interest on Loan will be deducted from Agricultural Income.

Mansha - Your Link states that if Expense cannot be identified or divisble between Exempt Income and Business income than we cannot claim that expense.

As per Income Tax Act no deduction in respect of any expenditure for an exumpted income so here it is rs 500000 and calculate the rebate on it 

Expenditure is no alloweble as deduction in respect of exumpted incomes

Expenditure incurred for earning exempt income is not deductible against the taxable Income. It may be deducted against Exempt income. So in this case net agricultural income only will be clubbed