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Individuals and entities earning income in India are required to fulfill the essential obligation of filing their income tax returns (ITR). Although ITR filing is generally a simple process for many sources of income, it becomes more complex when dealing with agricultural income due to the unique exemptions and declarations that taxpayers must keep in mind. This article aims to provide a comprehensive guide on ITR filing for agricultural income, covering the various exemptions that can be availed and the essential declarations that need to be made to comply with tax regulations.
Understanding Agricultural Income
Agricultural income pertains to the income generated from agricultural pursuits, including but not limited to farming, crop cultivation, dairy production, poultry farming, fishery, and the like. Under the provisions of the Income Tax Act, any income derived from agricultural activities is exempt from taxation. In order to qualify for this exemption, specific requirements must be satisfied, and the taxpayer must submit appropriate declarations when submitting their Income tax refund.
Exemptions for Agricultural Income
These are included under exemptions for agricultural income:
Inclusion of Agricultural Income
If an individual earns more than Rs. 5,000 in agricultural income during a financial year, they must include it in their total income when e-filing of income tax return. In case the agricultural earnings amount to less than Rs. 5,000, there is no compulsion to incorporate it in the overall income.
Tax Exemption on Agricultural Income
As previously stated, agricultural income is not subject to income tax according to the Income Tax Act. It implies that the revenue produced from farming operations is exempt from taxation.
Applicability of Other Taxes
Despite the exemption of agricultural income from income tax, it is still factored into the calculation of taxes on non-agricultural income. Tax slab rates for non-agricultural income are determined by considering the total income, which includes both agricultural and non-agricultural income.
Clubbing of Income
When an individual receives agricultural income from land that they have inherited, or that belongs to their spouse, the income is combined with their total income to calculate their tax liability. This is known as the clubbing of income. In case the ownership of the land belongs to a minor child, the provisions of clubbing do not apply.
Agricultural Income for Business Purposes
If agricultural activities are carried out for business purposes rather than for personal consumption, specific tax provisions apply. In such cases, income from agricultural activities is treated as business income, and taxpayers are required to maintain proper books of accounts and follow the prescribed accounting principles.
Declarations and Documentation
In order to successfully file their ITR with agricultural income, taxpayers must furnish the necessary declarations and supporting documents. Below are some crucial statements and necessary documentation prerequisites:
Agriculture Income Details
When it comes to reporting agricultural income, taxpayers are required to furnish precise information regarding the type of agricultural activities they engage in, the varieties of crops they cultivate, the total area of land they own, and the overall income generated from these activities. It is crucial to ensure that all the details provided are accurate and up-to-date. The ITR forms usually mandate the inclusion of these particulars.
Forms ITR-3 and ITR-4
If you have agricultural income from business activities, you must file your income tax return using either Form ITR-3 (for individuals and HUFs) or Form ITR-4 (for individuals, HUFs, and firms opting for presumptive taxation).
It is imperative to uphold accurate documentation to validate the agricultural revenue stated. It is advisable to keep important documents like land ownership records, lease agreements, bank statements, crop sale receipts, and expenditure statements for future reference. These documents may also come under scrutiny by tax authorities, so it’s better to keep them organized and accessible.
Compliance with Accounting Standards
It is mandatory for taxpayers involved in agricultural activities for commercial purposes to comply with the accounting standards. It is important for agricultural businesses to keep a record of their financial transactions, including income and expenses. Maintaining books of accounts and supporting documents is crucial to ensure an accurate representation of the business’s financial position.
Having a comprehensive knowledge of the exemptions and declarations that are particular to agricultural activities is crucial when it comes to filing income tax returns for agricultural income. Although agricultural income is not subject to income tax, it is crucial to adhere to the prescribed regulations and furnish precise details when submitting the ITR. Taxpayers can ensure compliance with tax laws and avoid potential penalties or legal complications by following the exemptions and declarations mentioned above.