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How to calculate agriculture income?

Ashim kr Ray (social service) (1695 Points)

27 May 2016

Sir,

I want to know how to calculate agriculture income in the other income is more than the exemption limit.

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2 Replies

Vishal Goel (Chartered Accountant) (1688 Points)
Replied 04 June 2016

Agricultural income is considered for rate purposes while computing the income tax liability, if following two conditions are cumulatively satisfied:

Net Agricultural income exceeds Rs. 5,000/- for previous year, and
Total income, excluding net Agricultural income, exceeds the basic exemption limit.

Once the aforementioned conditions are satisfied then we shall compute the Tax liability in the following manner:

♠ First, include the Agricultural income while computing your income Tax liability.

Example – Let us say that an Individual Assessee has a Total income of INR 7,50,000/- (excluding Agricultural income) and a Net Agricultural income of INR 100,000/-. Then, per this step, Tax shall be computed on INR 7,50,000/- + INR 1,00,000/- = INR 8,50,000/-. Thus, income Tax amount as per this step shall be INR 95,000/- for an individual who is below the age of 60 Years during the F.Y. 2015-16.

♠ Second, add the applicable basic tax slab benefit, as applicable, to the Net Agricultural income. Thus, per our example mentioned above we shall add INR 2,50,000/- to INR 1,00,000/- as the applicable Tax slab benefit available to an individual below 60 Years of age is INR 2,50,000/-. Now we will compute income Tax on INR 3,50,000/- (Tax slab benefit 2,50,000 + Net Agricultural income 1,00,000). The amount of Tax shall be INR 10,000/-.

♠ Third, subtract the Tax computed in Second step from the Tax computed in First step = INR 85,000/-.

Thus, this is the income Tax liability subject to deductions, Education Cess etc., as applicable.

Rebate U/S 87A is available provided condition fulfill.

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Vishal Goel (Chartered Accountant) (1688 Points)
Replied 04 June 2016

Tax Saving Tip:

Form a company or a partnership firm for the sole purpose carrying on your agricultural operations. As indirect effect of agricultural income is not applicable in a company or a firm, the complete amount would become exempt from taxation.