Tuesday, February 17, 2009

TREATMENT OF AGRICULTURAL INCOME


Agricultural income is integrated with non-agricultural income of an Individual, Hindu Undivided Family, Association Of Persons and Artificial Judicial Person whose total income excluding agricultural income exceeds the minimum taxable limit and agricultural income exceeds Rs.5000/-. At present the taxable limit of the non agricultural income is Rs.1, 10,000/-, in the case of women it is Rs.1, 45,000/- and it is Rs.1, 95,000/- for senior citizens.

Method of integration

1. Net agricultural income is integrated with non- agricultural income.
2. Income tax is calculated on this integrated income at the rates prevailing each assessment year
3. Then income tax will be calculated on the net agricultural income as increased by an amount of Rs.1, 10,000/- or Rs.1, 45,000/- or Rs.1, 95,000 as the case may be
4. Income tax calculated under no.3 above is deducted from the income tax calculated no.2 above.

CASUAL INCOME

Any receipts, which are of casual or non-recurring nature like winning from lottery, cross word puzzle, card games or any sort of gambling or betting etc treated as casual income

PARTLY AGRICULTURAL INCOME

Partly agricultural income consists of both the element of agriculture and business, so non agricultural part of the income is taxed. Eg:- Mr. X cultivating sugar cane at the same time he has a sugar mill for making sugar by using his own sugar cane
Rule no. 7 and 8 of the income tax act of 1961 regarding to partly agricultural income. They are,

1Profit of business other than Tea –Rule.7

This rule applicable to agricultural produce like cotton, tobacco, and sugarcane etc, here the market vale of the agricultural produce raised by the Assessee for utilizing it as raw material for his business will be deducted out of the total profit of such Assessee while calculating tax on his income.

2. Profit from Tea manufacturing Rule.8

If a person using his own tealeaves grown by him for his tea manufacturing business, then 60 % of his income will be treated as agricultural income and the remaining 40 % will be treated as business income so he has to pay tax on that remaining part of income.

3. Income from the manufacturing of centrifuged latex or cenex

If a person manufacturing centrifuged latex by using his own made raw material the,65 % of the income derived from the sale of the same is treated as agricultural income so he has to pay tax remaining part of the income.

4. Income from the coffee manufacturing

Same as the above mentioned, 75% of the income from the sale of coffee grown and cured by the seller in India is deemed to be a agricultural income.


While calculating tax on partly agriculture income, income totaled as business income. Besides they will get allowances for plating new plants for the damaged ones but if they received any subsidy from coffee board or tea board , no deduction shall be allowed.

AGRICULTURAL INCOME

Agriculture is a backbone of Indian economy and it is a state subject. Even though it is totally exempted from tax under Sec.10 (1) of the Income tax act of 1961, it is taken in to account for the tax calculation in certain class of Assessee.

Definition of agriculture income

Sec2 (1A) of the Act defines agriculture income as,

1.Any rent or revenue derived from land that is situated in India and is used for agricultural purpose.

2.any income derived from such land by-

a) Agriculture, or
b) Any process ordinarily employed by a cultivator or receiver of rent in kind to make the produce fit to be taken to market, or
c) The sale by a cultivator or receiver of rent in kind of the produce in respect of which no process has been performed other than a process of the nature described in the above paragraph.
3. Any income derived from farmhouse.

Ie agricultural income is an income as any rent or revenue derived from agricultural land that is situated in India and is used for agricultural purpose. Thus income from basic operation like cultivation, growing crops etc and secondary operation like removal ,digging etc can be classified as agricultural income and is exempt from tax.

CRITERIA TO DETERMINE AGRICUTURE INCOME

1.Income derived from land.
2.land is used for agricultural purpose
3.land is situated in India

TYPES OF AGRICULTURAL INCOME

1.Rent or revenue from agricultural land, which is situated in India
2.income derived from agriculture
3.Income from any process used by the cultivator to render the agricultural product marketable
4.Income from the sale of agricultural product raised or received as rent in kind
5.Income from building used for agriculture operation and is immediate vicinity of agricultural land.

Wednesday, February 11, 2009

EXEMPTED INCOME

These are incomes which neither included in total income nor income tax payable on them.

1.Agriculture income Sec10(1)
2.Sums received from the Hindu Undivided Family Sec.10 (2)
3.Share of profit of a partner in the firm shall be exempt Sec10 (2A)
4.Interest received by non-residents Sec.10 (4) (i) on the way of interest on the investment in notified bonds or securities.
5.Interest on non-resident (external) account in any bank of India Sec.10 (4)(ii)
6.Interest paid to a person of Indian origin and who is non resident Sec 10(4B)
7.Travel concession Sec10. (5)
8.Exemption to an individual who is not a citizen of India Sec.10 (6)
9.Tax paid by government or Indian concern on income of foreign company Sec10 (6A)(6B)(6BB) and (6C)
10.Perquisites and allowances paid by government to its employees serving outside India Sec.10 (7)
11.Income of employees of foreign countries working in India under cooperative technical assistance programme Sec.10 (8)
12.Remuneration or fees received by non-resident consultants and their foreign employees Sec.10(8A) and (8B)
13.Income of family members of an employee serving under the cooperative technical assistance programmes Sec.10(9)
14.Gratuity Sec10(10)
15.Commuted value of pension Sec10(10A)
16.Amount received as leave encashment on retirement Sec.10(10AA)
17.Retrenchment compensation Sec.10(10B)
18.Payment received under Bhopal gas leak disaster Sec.10(10BB)
19.Compensation received at the time of voluntary retirement Sec10(10.C)
20.Income by way of tax on perquisites Sec10(10.C)
21.Sum received from life insurance policy Sec 10(10D)
22.Payment from the statutory provident fund Sec.10 (11)
23.Payment from the Recognized provident fund Sec.10 (12)
24.Payment from approved superannuation fund Sec.10 (13)
25.House rent allowance Sec.10 (13.A)
26.Special allowance Sec.10 (14) other than perquisites to meet certain expenditure incurred during employment.
27.Interest on securities
28.Scholarships to meet the cost of education Sec.10 (16)
29.Allowances given to MPs MLAs and MLCs Sec.10 (17) under any act or rules made by the state legislature.
30.Award and reward given in cash or kind by any body which is approved by the central Govt Sec.10 (17)
31.Pension Sec.10 (18)
32.Annual value of one place, which is occupied by the ruler Sec 10(19A)
33.Income of local authority Sec.10 (20)
34.Income of scientific research association Sec.10 (21)
35.Income of news agency Sec.10 (22B)
36.Income of professional institutes Sec.10 (23A)
37.Income of regimental fund or non-public fund Sec.10 (23AA)
38.Income of fund for welfare of employees or their dependents Sec.10 (23AAA)
39.Income of pension fund setup by LIC of India approved by IDRA Sec.10 (23AAB)
40.Income from Khadi or Village industries Sec.10 (23B)
41.Income of Khadi or Village boards for the development of Khadi or Village industries in the State Sec.10 (23BB)
42.Income of statutory bodies for the accommodation of the public charitable trusts Sec10(23BBA)
43.Income of European Economic community Sec10(23BBB)
44.Income of SAARC fund for regional projects Sec.10(23BBC)
45.Income of the secretariat of Asian organization of Supreme Audit Institutions Sec.10(23BBD)
46.Income of insurance regulatory authority Sec.10(23BBE)
47.Exemption for any income of north –eastern development finance corporation limited Sec.10(23BBF) formed and registred under the companies act of 1956.
48.Income received by any person on behalf of certain national funds, educational institution and hospitals Sec.10(23C)
49.Income of mutual fund Sec.23.D registered under the SEBI act and set up by the Public Sector Bank or Public Financial Institution authorized or authorized by RBI
50.Income exchange risk administration fund Sec.10(23EA) from stck exchange and the members there to.
51.Income of credit guarantee funds trust for small tries Sec.10(23EB)
52.Income of inspector protection fund Sec.10(23EC) notified by the central govt.
53.Income by way of dividend and long term capital gains of venture capital funds and venture capital companies Sec.10 (23FA)
54.Income of the venture capital fund or companies Sec.10(23FB)
55.Income of registered trade unions Sec.10(24)
56.Income of provident funds and employees state insurance fund Sec.10(25)
57.Income of a member of a scheduled tribe Sec.10(26)
58.Income of residents of Ladakh Sec.10(26A)
59.Income of body for promoting interest of scheduled castes/tribes/backward class Sec.10(26B)
60.Income of corporation for the benefit of the minority communities Sec.10(26BB)
61.Income of corporation established by the central Govt for the upliftment of ex-serviceman Sec.10(26BBB)
62.Income of cooperative society for promoting the interests of the scheduled casts /tribes Sec.10(27)
63.Income of board Sec.10(29A) like coffee board, rubber board..etc
64.Subsidy from tea board Sec. 10(31)
65.Income of minor child Sec.10(32)
66.Income from units of units scheme 1964 Sec.10(33),if the transfer take place after 1.4.2002
67.Dividends etc Sec.10(34)
68.Income from units Sec.10(35) of mutual fund or from the administrator of specified undertakings etc.
69.Income from equity shares Sec.10(36)
70.Capital gains arising through transfer of agriculture land situated in the urban area Sec.10(37)
71.Long term capital gain on transfer of an equity share or a unit Sec10(38)
72.Income from international sporting event Sec.10(39) approved by the international body
73.Income of subsidiary company Sec.10(40) of a Indian holding company
74.Income from transfer of capital asset Sec.10(41) of an undertaking engaged in the business of power generation
75.Specified income of body or authority Sec.10(42) is established or constituted not for the purpose of profit
76.Income from newly industrial undertaking in free trade zones, etc Sec 10A ie gain from the export of articles or computer software
77.Newly established 100% export oriented undertakings Sec.10B approved by the body appointed by the central govt

Wednesday, February 4, 2009

BASIC CONCEPTS OF INCOME TAX


An assesses may get income from different sources, eg:- salaries-house property income-profits and gains of business or profession - capital gains income from other sources like interest on securities , lottery winnings, races etc.

Income from each of these sources calculated first to find out the gross total income, and then permissible deduction allowed arriving in total income according to sec 80 c to 80 u. Every person whose taxable income in the previous year exceeds the minimum taxable limit is liable to pay income tax during the current financial year at the rates applicable to the current financial year.

ASSESSMENT YEAR SEC 2(9)
Assessment year means the period of 12 months commencing on the first day of April every year and ending on 31st march of the next year. The current assessment year is 2007 -008(1.4.2007 to 31.03.2008).
An Assessee is liable to pay tax on the income of the previous year during the next following assessment year. Eg: - during the Assessment year 2007-08 income earned during 2006-07 is taxed.

PREVIOUS YEAR SEC 3

Previous year means the financial year immediately preceding the assessment year. The previous year relevant to the Assessment year 2007-08 is 2006-07(1.4.06 to 31.03.07).ie the year in which income is earned is known as previous year.


PERSONS SEC 2(34)

1. Individual
2. Hindu undivided family
3. Company
4. Firm
5. Association of persons or body of individual
6. Local authority
7. Artificial juridical person

ASSESSEE SEC 2(7)

Assessee is a person, who has liability to pay tax or any other sum of money under Income Tax act of 1961, so the afore said persons include in the category of Assessee. Every Assessee whose taxable income in the previous year exceeds the minimum taxable limit is liable to pay income tax during the current financial year at the rates applicable to the current financial year.

EXCEPTIONS TO THE GENERAL RULE

Generally income earned in the previous year is taxed in the assessment year. But there are certain exceptions to the general rule. Ie the previous year and assignment year are same; the Assessee is liable to be assessed in the same year in which he earns the income in the following case,

1. Income from non resident shipping company
2. Income of person leaving India
3. Income of person likely to transfer assets to avoid tax
4. Income from discontinued business.

GROSS TOTAL INCOME

It is the aggregate taxable income under the different heads of income such as income from salary, income from house property, income from profits or gains of business, capital gains and income from other sources. Ie total income computed in accordance with the provision of the act before making any deductions under Sec 80 C to 80 U

TOTAL INCOME SEC 2(45)

Total income is arrived after making various deductions from gross total income under section 80 C to 80 U. It is computed on the basis of residential status of an Assessee

RESIDENTIAL STATUS

Income tax is charged on total income earned by an Assessee during the previous year, but at the rate applicable to the assessment year. It shall be determined on the basis of the residential status of the Assessee. Sec.6 of the act divides the Assessee into 3 categories’
*Resident
*Non resident
*Not ordinary resident

There is basic and additional condition for determining the residential status of different assessee.

Basic condition

1. If he has been India in that previous year for a period or periods amounting in all to 182 days or more
2.if he has been India for a period or periods amounting in all to 365 days or more, during the 4 years preceding the relevant previous year and has been in India for a period or periods amounting in all to 60 days or more in that previous year.

Additional conditions

1.An individual who has been in India at least 2 out of 10 previous years preceding the relevant previous year.
2.The individual has been India for at least 730 days in all during the 7 previous year preceding the relevant previous year.

RESIDENT AND ORDINARY RESIDENT

Persons who are resident in India is popularly known as ordinary resident. An individual, to become an ordinary resident in India in any previous year should also satisfy the two additional conditions along with basic conditions.

NOT ORDINARILY RESIDENT INDIVIDUAL- SEC.6 (6)

If an individual fulfills any one of the basic conditions (specified in the case of resident) but doesn’t satisfy both additional conditions, he becomes a ‘not ordinary resident’

NON RESIDENT INDIVIDUAL

As per section 2(30) of the income tax act, if an Assessee doesn’t fulfill any of the two basic conditions or tests will be treated as non resident Assessee during the relevant previous year.

RATE OF INCOME TAX PAYABLE (ASSESSMENT YEAR 2008-09)

*Normal rate of tax

Up to Rs.1, 10,000 nil
Next RS 40,000 10%
Next Rs 1, 00,000 20%
Above Rs.2, 50,000 30%

*For a woman below 65 years of age

Up to Rs.1, 45,000 nil
Next Rs.5000 10%
Next Rs.1, 00,000 20%
Above Rs.2, 50,000 30%

*Senior citizens at the age of 65 year or more

Up to Rs.1,95,000 nil
Next Rs.55, 000 20%
Next Rs.2, 50,000 30%

*Surcharge- In the case of individual and HUF, there is no surcharge if income is less than 10 lakhs. If it exceeds 10 lakhs then surcharge is 10%. But, the surcharge is 2.5% in the case of company, firm. Local authorities etc.
*Educational Cess: - 3% on amount payable as Tax.