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In India, which class or 
group of people are not 
liable to income tax ? 
1
HINT 
2
Whether not taxing people 
from agricultural sector is right 
or wrong ? 
3
AGRICULTURE INCOME: 
SHOULD IT BE TAXED ? 
By 
- Radhey rathi 
4
PRESENT SCENARIO 
Exempt under the Income Tax Act. 
 Exclusive power given by the Constitution to 
make laws in relation to taxes levied on 
agricultural income. 
5
OTHER REASONS ( MAIN REASONS) 
 India being a developing country, maximum number 
of people in agricultural sector 
 Main Vote bank for political parties 
6
REASONS FOR NOT TAXING AGRICULTURAL 
INCOME 
 Sector in bad shape 
 Many farmers leaving this sector 
 Suicides 
 Unreliable weather 
 Lower prices offered by middlemen and traders 
 So, the government does not want to curse farmers 
more by levying taxes on them. 
7
Do you all really believe that farmers 
are in a bad condition ? 
Do you feel that all farmers have to 
struggle a lot to make both ends meet 
? 
8
10
REAL SCENARIO 
 Large number of farmers are immensely rich. 
 Evident from sale of 1500 luxurious cars like 
Mercedes, Audi and BMW in Punjab ( an 
agriculturally driven state) 
 Hardworking salaried people and businessmen feel 
depressed when they see that these rich farmers 
are not liable to pay any income tax 
11
FOR/AGAINST TAXING THE AGRICULTURAL 
INCOME 
 India, a developing nation, hence large amount of 
expenditure is required for proper development of 
infrastructure. 
 Suicides of farmers – not a point to be considered 
here. Rather government should analyze the 
reasons behind it. 
12
 A wrong belief that this will deplete funds and 
resources available with poor farmers. 
 As per the recent budget, income up to Rs. 
2,50,000 is exempt from income tax. 
 Hence, levying of income tax will not deplete funds 
and resources of poor farmers. Only rich farmers 
would be liable for income tax. 
13
ANOTHER BENEFIT TO FARMERS 
 Income tax to be levied as per the land holding 
pattern. Example – 
 3 people in a farmer’s family. Assume land is 
equally distributed in their name. 
 So, income of Rs. 7,50,000 ( i.e. Rs. 2,50,000*3) 
would be exempt. 
 This is not the case with a salaried person with 2 
members in the family. 
 Hence, for a non-agricultural family, exemption limit 
would be only Rs. 2,50,000. 
14
BENEFIT IF LIABILITY ARISES 
 Farmers will start investment by way of PPF or 
NSC, which has two benefits, namely :- 
1. Such an amount can be claimed as deduction. 
2. Habit of saving would be inculcated, which will 
lead to bright future of farmers as well as of India 
as a whole. 
15
HISTORY 
 All agencies and commissions set up in last 65 
years unanimously believe that there should be 
income tax on agricultural income. 
 Some eminent people who feel that Agricultural 
income should be taxed :- 
1. Dr. K N Raj, an eminent economist who served as 
advisor to prime ministers like Pt. Jawaharlal 
Nehru and P.V. Narasimha Rao. 
2. Dr. Ambedkar 
 Even Taxation enquiry Commission set up in 
1953-54 was of the same view. 
16
WHAT IS AGRICULTURAL INCOME ? 
 As per IT Act, any income from the following three 
sources is considered as agricultural income :- 
1. Any rent received from land which is used for 
agricultural purpose. 
2. Any other income derived from such land by 
agricultural operations including processing of 
agricultural produce. 
3. Income attributable to a farm house ( subject to 
some conditions as per Income Tax Act) 
17
PRE REQUISITE CONDITIONS 
 The following conditions have to be sufficed in 
order to consider an income to be an agricultural 
income :- 
1. There must be land. 
2. The land is being used for agricultural purposes 
3. Land cultivation is must 
4. If rent is received, then to assess that rent income 
as agricultural income, there should be agricultural 
activities on that land. 
5. Income of farm house is considered as agricultural 
income only if farm house is built on that land and 
it is used as a store house. 
6. Ownership of land is not essential. 18
Is agricultural 
income really not 
taxed in India ? 
19
No, it is indirectly 
taxed. 
20
INTEGRATION OF INCOMES 
 If Agricultural Income > Rs. 5,000 
Or 
 If Non agricultural income > Rs. 2,50,000 (basic 
exemption limit), then 
 Follow the following steps to calculate total tax 
liability 
21
 Step – 1 – Total Income = Agricultural income + 
Non Agricultural Income 
 Step – 2 – Calculate tax liability on Total income 
(Step -1) 
 Step – 3 – Add Basic exemption limit to the 
agricultural income 
 Step – 4 – Calculate tax liability on amount 
calculated in Step – 3. 
 Step – 5 – Deduct amount of tax calculated in Step 
– 4 from tax liability as per Step – 2. 
 Step – 6 – Add education cess and secondary and 
higher secondary cess to it. 
 Step – 7 – Total tax liability = Step – 5 + Step – 6 
22
 E.g. For the PY 2013-14, Mr. X has agricultural 
income of Rs. 2,50,000 and salary income of Rs. 
7,50,000. 
 Here, Total income = Agricultural income + Non-agricultural 
income 
= Rs. 2,50,000+ 7,50,000 
= Rs. 10,00,000 
 Tax on total income = Rs. 2,00,000 
 Agricultural income + Basic Exemption limit 
= Rs. 2,50,000 + Rs. 2,50,000 = Rs. 5,00,000 
Tax on Rs. 5,00,000 = Rs. 1,00,000 23
 Hence, tax liability = Rs. 2,00,000 – Rs.1,00,000 
= Rs. 1,00,000 
Add: Edu. Cess and S&H edu. Cess = Rs. 3,020 
= Total Tax liability = Rs. 1,03020 
Tax on only NON AGRICULTURAL income of Rs. 
7,50,000 
= Rs. 75,000 
Indirect tax on agricultural income = Rs. 25,000 
(Rs. 1,00,000 – Rs, 75,000) 
24
Why not tax agriculture 
income directly ? 
25
Thank you  
26

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AGRICULTURE INCOME

  • 1. In India, which class or group of people are not liable to income tax ? 1
  • 3. Whether not taxing people from agricultural sector is right or wrong ? 3
  • 4. AGRICULTURE INCOME: SHOULD IT BE TAXED ? By - Radhey rathi 4
  • 5. PRESENT SCENARIO Exempt under the Income Tax Act.  Exclusive power given by the Constitution to make laws in relation to taxes levied on agricultural income. 5
  • 6. OTHER REASONS ( MAIN REASONS)  India being a developing country, maximum number of people in agricultural sector  Main Vote bank for political parties 6
  • 7. REASONS FOR NOT TAXING AGRICULTURAL INCOME  Sector in bad shape  Many farmers leaving this sector  Suicides  Unreliable weather  Lower prices offered by middlemen and traders  So, the government does not want to curse farmers more by levying taxes on them. 7
  • 8. Do you all really believe that farmers are in a bad condition ? Do you feel that all farmers have to struggle a lot to make both ends meet ? 8
  • 9.
  • 10. 10
  • 11. REAL SCENARIO  Large number of farmers are immensely rich.  Evident from sale of 1500 luxurious cars like Mercedes, Audi and BMW in Punjab ( an agriculturally driven state)  Hardworking salaried people and businessmen feel depressed when they see that these rich farmers are not liable to pay any income tax 11
  • 12. FOR/AGAINST TAXING THE AGRICULTURAL INCOME  India, a developing nation, hence large amount of expenditure is required for proper development of infrastructure.  Suicides of farmers – not a point to be considered here. Rather government should analyze the reasons behind it. 12
  • 13.  A wrong belief that this will deplete funds and resources available with poor farmers.  As per the recent budget, income up to Rs. 2,50,000 is exempt from income tax.  Hence, levying of income tax will not deplete funds and resources of poor farmers. Only rich farmers would be liable for income tax. 13
  • 14. ANOTHER BENEFIT TO FARMERS  Income tax to be levied as per the land holding pattern. Example –  3 people in a farmer’s family. Assume land is equally distributed in their name.  So, income of Rs. 7,50,000 ( i.e. Rs. 2,50,000*3) would be exempt.  This is not the case with a salaried person with 2 members in the family.  Hence, for a non-agricultural family, exemption limit would be only Rs. 2,50,000. 14
  • 15. BENEFIT IF LIABILITY ARISES  Farmers will start investment by way of PPF or NSC, which has two benefits, namely :- 1. Such an amount can be claimed as deduction. 2. Habit of saving would be inculcated, which will lead to bright future of farmers as well as of India as a whole. 15
  • 16. HISTORY  All agencies and commissions set up in last 65 years unanimously believe that there should be income tax on agricultural income.  Some eminent people who feel that Agricultural income should be taxed :- 1. Dr. K N Raj, an eminent economist who served as advisor to prime ministers like Pt. Jawaharlal Nehru and P.V. Narasimha Rao. 2. Dr. Ambedkar  Even Taxation enquiry Commission set up in 1953-54 was of the same view. 16
  • 17. WHAT IS AGRICULTURAL INCOME ?  As per IT Act, any income from the following three sources is considered as agricultural income :- 1. Any rent received from land which is used for agricultural purpose. 2. Any other income derived from such land by agricultural operations including processing of agricultural produce. 3. Income attributable to a farm house ( subject to some conditions as per Income Tax Act) 17
  • 18. PRE REQUISITE CONDITIONS  The following conditions have to be sufficed in order to consider an income to be an agricultural income :- 1. There must be land. 2. The land is being used for agricultural purposes 3. Land cultivation is must 4. If rent is received, then to assess that rent income as agricultural income, there should be agricultural activities on that land. 5. Income of farm house is considered as agricultural income only if farm house is built on that land and it is used as a store house. 6. Ownership of land is not essential. 18
  • 19. Is agricultural income really not taxed in India ? 19
  • 20. No, it is indirectly taxed. 20
  • 21. INTEGRATION OF INCOMES  If Agricultural Income > Rs. 5,000 Or  If Non agricultural income > Rs. 2,50,000 (basic exemption limit), then  Follow the following steps to calculate total tax liability 21
  • 22.  Step – 1 – Total Income = Agricultural income + Non Agricultural Income  Step – 2 – Calculate tax liability on Total income (Step -1)  Step – 3 – Add Basic exemption limit to the agricultural income  Step – 4 – Calculate tax liability on amount calculated in Step – 3.  Step – 5 – Deduct amount of tax calculated in Step – 4 from tax liability as per Step – 2.  Step – 6 – Add education cess and secondary and higher secondary cess to it.  Step – 7 – Total tax liability = Step – 5 + Step – 6 22
  • 23.  E.g. For the PY 2013-14, Mr. X has agricultural income of Rs. 2,50,000 and salary income of Rs. 7,50,000.  Here, Total income = Agricultural income + Non-agricultural income = Rs. 2,50,000+ 7,50,000 = Rs. 10,00,000  Tax on total income = Rs. 2,00,000  Agricultural income + Basic Exemption limit = Rs. 2,50,000 + Rs. 2,50,000 = Rs. 5,00,000 Tax on Rs. 5,00,000 = Rs. 1,00,000 23
  • 24.  Hence, tax liability = Rs. 2,00,000 – Rs.1,00,000 = Rs. 1,00,000 Add: Edu. Cess and S&H edu. Cess = Rs. 3,020 = Total Tax liability = Rs. 1,03020 Tax on only NON AGRICULTURAL income of Rs. 7,50,000 = Rs. 75,000 Indirect tax on agricultural income = Rs. 25,000 (Rs. 1,00,000 – Rs, 75,000) 24
  • 25. Why not tax agriculture income directly ? 25

Editor's Notes

  1. Question to leaders of tomorrow