India is an agro-based country since approximately 70% of its population earns bread and butter through farming. But farming is not the only composition of agricultural income. There are many associated works that generate income, like renting out the agro-land. This facility is available for the natives of India. But an NRI can’t invest in the purchase of agriculture land or farm house in India.
Let’s catch on details about the agricultural income sourced from India and abroad.
What is agricultural income in India?
The revenue generated through farming or agricultural land, buildings or commercial produce from such land is considered as the agricultural income in India. Its details are mentioned in Section 2(1A) of the Income Tax Act. Ownership, here, does not matter. Suppose a non-resident takes farming land on lease for earning through farming, it would be considered as income from agriculture.
If the revenue is by any means connected with agro-land, it would be counted as the revenue from cultivation. This revenue can be generated through sale of the processed crop. The sale of timber drawn from the trees of such land will also be a part of this income.
There is another situation when the same land or building, like storeroom, outhouse or residential place on/around it is rented out. That rent will be a source of agriculture income.
Taxability of agricultural income from India:
A clause under Section 10(1) of Income Tax Act declares that the income from cultivation shall be exempted from tax. It means that the central government can’t levy any tax on such kind of income.
Please underline that state government can levy tax on the same. But this possibility will arise when the income would exceed INR 5,000 in a financial year. The form ITR 1 or ITR 2 should be filled for income tax return. Conversely, the lesser money earned than the said income shall be exempted from the tax.
Taxability of agricultural income from abroad in India:
Although agricultural income is free from the payable tax under prescribed conditions, but if the same is sourced through the foreign agricultural land, the revenue would be ‘taxable in India’. On consulting this matter with any trustworthy outsourcer who deals in NRI services, the concept of tax will be clearer. This condition will be underlined as the ‘Income from Profits and Gains of Business or Profession’ or ‘Income from Other Sources’.
How to calculate income tax over the foreign agricultural income?
Be it the revenue from house property, business, salary or any other source, such income will be taxable. For the NRIs, the revenue generated from the cultivation abroad will fall under the head ‘Income from Other Sources’. Therefore, it would be taxable. The NRIs can consult any reliable entity deals in NRI investment services to dispel confusion over it.
Let’s check how tax is calculated in such condition.
- When the income is derived from the agriculture land: Take an example. An NRI invested in farming in Canada and earns INR 200,000. Alongside, he is a salaried employee whose monthly income is, let’s say, INR 1 lakh. He generates revenue from dual sources. His salary will be known as base income whereas the former income will be agricultural income.
Now, the tax shall be computed by adding base salary with the agricultural revenue. Then, the output will be multiplied by the fixed tax, let’s say 20%, as per slab. The computation will be like this: 20% (INR 100,000 + INR 200,000) = 20%X INR 300,000 = INR 60,000.
- When the tax slab changes: The tax slab undergoes revision every financial year. Therefore, it impacts the computation of tax. To cope up that amendment, the computation would be like this: Tax (Basic Tax Slab + Agriculture Income).
- How much tax is payable?
When the foretold cases are computed carefully, the final computation of tax is to be done. It should be like this: T (Base Income + Agriculture Income) – T (Basic Tax Slab + Agriculture Income).