How to calculate agriculture income tax?
You do not have to pay income tax on your agriculture income, irrespective of the amount of agricultural income you earn. Isn’t this a good enough reason to take up farming? The Central Government cannot charge tax on agriculture income. The State Government can charge tax on agriculture income. However if your agricultural income is within INR 5,000 a year, no tax will be charged.
How is agriculture income taxed?
Let’s go through these important points, before we get down to calculations:
- The Government has found an indirect way, to make sure you pay tax on your agricultural income. This is a concept known as partial integration of taxes.
The following two conditions you have to satisfy before your income is taxed under partial integration:
- Your net agricultural income should exceed Rs.5,000 a year.
- Your non agricultural income should exceed the basic tax exemption limit.
If your annual income is more than INR 2,50,000 a year (male/female under 60 years), If your annual income is more than INR 3,00,000 a year (senior citizen between 60 years to 80 years) and If your annual income is more than INR 5,00,000 a year, (super senior citizen above 80 years), your income is taxed under partial integration.
Learn how agriculture income is taxed
Let’s understand how agriculture income is taxed with a simple example: Ramesh who is 40 years, works in a Software Company and earns a salary of INR 7 Lakhs a year. Ramesh also earns INR 2.4 Lakhs a year, as agricultural income from renting out agricultural land. Let’s calculate, Ramesh income tax liability.
Add :Agriculture income + Non Agriculture income
- Ramesh earns Rs. 2.4 Lakhs a year as agriculture income and Rs. 7 Lakhs a year, as non agriculture income.
Add :INR 2.4 Lakhs+INR 7 Lakhs?=?INR 9.4 Lakhs.
Compute tax on the aggregate income.
- Ramesh Total income (agricultural + non agricultural) is INR 9.4 Lakhs.Ramesh falls in the Rs. 5,00,001 to INR 10,00,000 slab. His income is taxed at 20%. Ramesh has to pay an income tax of INR 1,13,000.
Amount of income tax Ramesh pays = INR 1,13,000.
Add the basic tax exemption limit for the relevant financial year FY 2016-17, to the net agricultural income.
- Ramesh enjoys a basic tax exemption of INR 2.5 Lakhs. He also earns an agricultural income of INR 2.4 Lakhs.
- The aggregate amount is INR 2.5 Lakhs + INR 2.4 Lakhs = INR 4.9 Lakhs.
Calculate income tax on the aggregate amount which you have arrived at in STEP 3
You have to calculate income tax on the aggregate amount of INR 4.9 Lakhs shown in STEP 3.
- The basic exemption limit is INR 2.5 Lakhs.
You have to calculate income tax on INR 4.9 Lakhs??INR 2.5 Lakhs = INR 2.4 Lakhs. This amount is taxed at 10%.
Income tax on aggregate amount = INR 2.4 Lakhs @ 10% = INR 24,000.
Deduct the amount calculated in STEP 4 from the amount calculated in STEP 2.
To get Ramesh income tax liability, you have to deduct the income tax on aggregate amount shown in STEP 4 from amount of income tax Ramesh pays in STEP 2.
This is INR 1,13,000-INR 24,000 = INR 89,000.
You have to subtract the rebate you get under Section 87A.
If your total income does not exceed INR 5 Lakhs a year, you get an income tax rebate of INR 5,000 under Section 87 A. Ramesh earns a salary of INR 7 Lakhs a year and is not eligible for the rebate.
You have education cess at 2% and secondary and higher education cess at 1%. The total cess is 3%.
Ramesh has to pay cess of 3% on the income of INR 89,000, which is INR 2,670. Ramesh has to pay a total income tax of INR 91,670.