Feb 192015

Agriculture Income To Employee

In previous document we have discuss few methods of planning your salary structure in the manner that suits tax man and in the same time minimise your tax bill. Even after availing all those benefits requirement is observed to avail some more avenues of income which are tax free and can be earned with minimal efforts. Hence we are looking forward for agriculture income, which is a need of human life.

What practically few employees doing is; while working in office of employment they give their lands to cultivate and grow to others which is managed by their family. In this way they have a additional source of income and at the same time they need not to pay additional tax. The provision related to agriculture income explained in following para.

Meaning of “Agriculture Income” : Agriculture Income means-

  1. any rent or revenue derived from the land which is situated in India and is used for agriculture purposes sec.2(1A)
  2. any income derived from the land by agricultural operation including processing of the agriculture produce, raised or received as rent –in-kind so as to render fit for the market, or sale of such produce[sec.2(1A)
  3. income attribute to a farm house subject to the conditions that on the building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house or other out building and the land is assessed to land revenue or a local rate or, alternatively ,the building is situated on or in the vicinity of land which (though not assessed to land revenue or local rate) is situated outside in urban areas, i.e., any area which comprised within the jurisdiction of a municipality or cantonment board having population of 10,000 or more in any area within such notified distance upto 8 km from the local limits of such municipality or cantonment board.

 Benefit of having Agriculture Income

  • SECTION 10(1) exempts agriculture income from tax.
  • The reason of exemption of agricultural income from central taxation is that the constitution gives exclusive power to makes laws with respect to taxes on agricultural income to the state Legislature.
  • Agricultural income is taken into consideration to determine tax on non-agricultural income in exceptional cases only.
  • With effect from the assessment year 2009-10, any income derived from saplings seedlings grown in a nursery shall be deemed to be an agricultural income.

Essentials condition to prove income to be agriculture income:-

– There must have a land.
– Rent or revenue should be derived from land.
– The land is one which is situated in India.
– The land is used for agricultural purposes.

How shall an employee take benefit of this provision:-

To availing this exemption, an employee shall disclose his agriculture income in the exempted income listing of return. At self assessment level no other procedural requirement needs to be met. However, in case of scrutiny employee must prove correctness of his claim to Income Tax Authority (ITA).

Further to avail this exemption, employees needs to show a relation between his income and agriculture land situated in India. Employees need not to be owner of land. The only requirement is a relation between income and agriculture land. This relation may be direct or indirect.

It shall be noted that agriculture income is added to salary income only for determining tax rates on salary income. To that extent it can be said agriculture income is indirectly taxed in terms of higher tax rates of normal salary income.

However in some cases transactions are coloured as agriculture income. This is not correct. If you get catch my ITA, it will raised huge penal and prosecution action against such person.

So after discussion the scope of taxation of agriculture income it may be concluded that even if you are not owner of land still you can avail the benefit of this exemption and minimise your tax bill. In upcoming document we will provide you practical method of availing this exemption and few other important aspects related to agriculture income.