Agricultural income is not taxable under Section 10 (1) of the Income Tax Act as it is not considered as a part of an individual’s total income. However, the state government can levy tax on agricultural income if the amount exceeds Rs.5,000 per year. However, this income is considered for rate purposes while calculating the income tax liability of the individual.
For all other normal purposes, the tax calculation will involve the following steps:
- Including the Agricultural Income – Say ‘X’ is the base income of the individual and ‘Y’ is the agricultural income, tax first needs to be computed on the amount of X+Y. Let’s call this “tax as T(X+Y)”
- Adding the basic tax slab benefit – Subject to the amendments the basic tax slab might change, but for clarity’s sake let’s consider that as ‘S’. That needs to be added to the agricultural income and another tax is be calculated on the amount. Let’s call this “tax as T(S+Y)”
- Thus Final Tax = T(X+Y) – T(S+Y) and add/(Less) Surcharge, Health & Education cess, (Rebate),etc., as may be applicable.
*One should always remember to aggregate the agricultural income while calculating tax since that can allow one to avoid unnecessary extra taxes or interest on taxes.