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September 1, 2020

Details required in ITR in case you have agriculture income

Details required in ITR in case you have agriculture income

As India is basically an agrarian economy, several incentives and perks are offered, to those making a living through agriculture. In India, agricultural income refers to revenue derived from sources that include farming land, buildings on or identified with an agricultural land and commercial produce from a horticultural land.

Agricultural income is defined under the Income Tax Act, 1961. According to Income Tax Law, agricultural income generally means:

  • Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
  • Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce.
  • Income derived from farm building required for agricultural operations:
  • Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.

Examples of Agricultural Income

The following are some of the examples of agricultural income:

  • Income derived from sale of replanted trees.
  • Income from sale of seeds.
  • Rent received for agricultural land.
  • Income from growing flowers and creepers.
  • Profits received from a partner from a firm engaged in agricultural produce or activities.
  • Interest on capital that a partner from a firm, engaged in agricultural operations, receives.

How is agricultural income taxed?

There is no tax on agricultural income but if an assessee has non-agricultural income as well as agricultural income, such agricultural income is included in his Total Income for the purpose of computation of Income-tax on non-agricultural income. This is also known as partial integration of agricultural income with non-agricultural income or indirect way of taxing agricultural income.

How to calculate Tax on Non-Agricultural Income if the Assessee has both agricultural & Non-Agricultural Income?

Step 1 – Calculate tax on (non Agricultural Income + net Agricultural Income)

Step 2 – Calculate tax on (net Agricultural Income + max exemption limit as per slab rates)

Step 3 – Calculate final tax (Step 1) – (Step 2) as above and (-) Rebate, if any (+) Surcharge (+) Cess

Which Income Tax Return is applicable for Agricultural Income

The Central Board of Direct Taxes (CBDT) has notified and released various ITR forms for different purposes. If you file your return using the wrong form, then it will be considered defective. If the defect is not rectified, the return will be regarded as invalid, and the department will treat it as if the person did not file his return. Hence it is extremely important to know which ITR is applicable for which kind of assessee and for what income.

If the aggregate agricultural income of the assessee is up to Rs. 5,000 disclose the agricultural income in the income tax return (ITR) 1. But if the agricultural income exceeds Rs. 5,000, then form ITR 2 applies.

ITR -1 Form is a simplified one-page form for individuals having income up to Rs 50 lakh from the following sources:

  • Income from Salary/Pension
  • Income from One House Property (excluding cases where loss is brought forward from previous years)
  • Income from Other Sources (excluding winning from Lottery and Income from Race Horses)

ITR-2 Form is for individuals and HUFs not carrying any profession or business. Thus persons having income from following sources are eligible to file Form ITR 2:

  • Income from Salary/Pension
  • Income from House Property
  • Income from Capital Gains/loss on sale of investments/property
  • Income from Other Sources (including winning from Lottery, bets on Race Horses and other legal means of gambling)
  • Foreign Assets/Foreign Income
  • Agricultural Income more than Rs 5000
  • Resident not ordinarily resident and a Non-resident
  • A Director of any company and an individual who is invested in unlisted equity shares of a company will be required to file their returns in ITR-2.

Disclosures required in ITR 2 pertaining to agricultural income

Agricultural income exceeding Rs 5 lakh is to be reported separately along with additional details such as name of the district with pin code, measurement of land, whether owned or leased and whether irrigated or rain-fed under the ‘exempt income schedule’

Under Schedule EI, following disclosures are required in case of agricultural income exceeds Rs. 5 Lakhs:

  • Name of district along with pin code in which agricultural land is located
  • Measurement of agricultural land in Acre
  • Whether the agricultural land is owned or held on lease (drop down to be provided)
  • Whether the agricultural land is irrigated or rain-fed (drop down to be provided)

Above disclosure to be provided separately for each agricultural land

Following disclosures are to be made w.r.t Expenditure incurred on agriculture and unabsorbed agricultural loss of previous eight assessment years:

Claim of expenditure and brought forward losses is to be entered in the manner provided as per Part IV of First Schedule of the relevant Finance Act from gross agricultural income. Unabsorbed agricultural loss upto previous eight assessment years can be adjusted.

Net Agricultural income for the year which is an auto-populated figure computed as gross agricultural receipts reduced by expenditure and unabsorbed agricultural losses is also to be disclosed

Filing ITR comes with a number of benefits such as claiming deductions, set off and carry forward of losses, avoid interest and penalties on tax liability and so on. It is always considered a prudent action to file one’s income tax return on time.

More than any other benefit, being on the right side of law helps. It is recommended to keep the income tax department informed about one’s income and taxability. This communication is only possible when one files their ITR properly with all the required disclosures.

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