Discuss the existing Indian tax policy for agricultural income.
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.
Note: If aggregate agricultural income of the assessee is up to Rs. 5,000/- during FY 2015, then the entire income shall be exempt from tax. Accordingly, you need to disclose the agricultural income in the income tax return (ITR) 1 form to be compliant from the disclosure perspective. But if the agricultural income exceeds Rs.5,000, then form ITR 2 applies, which has a separate column for disclosure of agricultural income.
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
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