NTA UGC NET 2019 Commerce full free notes for income tax and corporate planning

Unit 10 - Income tax and corporate tax planning

Agricultural income:

What is agricultural income?

• Any rent or revenue or income from land;

• Any income from such land by agriculture or from processing of agricultural products and sale of such agricultural products;

• Any income from farm building on or near by such agricultural land which is subject to land revenue or local rate.

The above three types of income shall be considered as ‘agricultural income’ only if the following conditions are satisfied:

• Income must be derived from land.

• Land must be situated in India.

• Land must be used for agricultural purposes.

Income which are considered as an agricultural income:

• Income from nursery (saplings and seedlings grown in a nursery) shall be treated as agricultural income.

• Agriculture includes horticulture (gardening), sylviculture (developing forests) , floriculture (Growing plants), and arboriculture (growing trees).

Partially agricultural income and partially non-agricultural income:

Rule 7 – General rule (except for tea, coffee, and rubber)

Non-agricultural income = sale value of industrial product (eg., sugar) – market value of agricultural raw material – industrial expenses. (fully taxable).

Agricultural income = market value of agricultural raw material – cost of cultivation (fully exempted).

For example, 

Manufacturing value of potatoes for making chips = Rs 8 lakhs, cultivation costs = Rs 5 Lakhs; Hence, agricultural income = Rs 8 lakhs - Rs 5 lakhs = Rs 3 Lakhs (exempt)

Rule 7A – Growing and manufacturing rubber in India.

Total income = sale value of rubber – cost of cultivation – industrial expenses.

Agricultural income = 65% of the total income (exempt)

Non-agricultural income = 35% of the total income (taxable)

Rule 7B – Growing and manufacturing coffee in India.

Total income = sale value of coffee – cost of cultivation – industrial expenses.

Case 1 – Growing and curing coffee by the seller 

Agricultural income = 75% of the total income (exempt)

Non-agricultural income = 25% of the total income (taxable)

Case 2 – Growing, curing, roasting, and grinding by the seller with or without mixing chicory or other flavouring ingredients.

Agricultural income = 60% of the total income (exempt)

Non-agricultural income = 40% of the total income (taxable)

Rule 8 – Growing and manufacturing tea in India.

Total income = sale value of tea – cost of cultivation- industrial expenses.

Agricultural income = 60% of the total income (exempt)

Non-agricultural income = 40% of the total income (taxable)

How to compute tax if the total income includes agricultural income also? (partial integration)

There are two conditions which are to be satisfied for partial integration:

• The agricultural income (net) exceeds Rs 5,000.
• Non-agricultural income exceeds the minimum exemption limit for an individual (except the individual who are above 60 years of age) , HUF, etc. 

(The maximum exemption limit for the assessment year 2019-2020 is Rs 2,50,000)

Following are the steps to be followed for partial integration:

Step 1 - Calculate the aggregate of agricultural income and non-agricultural income.

Step 2 - Calculate tax at the prescribed rate on the aggregate income assuming that the aggregate income is the total income.

Step 3 - Add agricultural income to the maximum exemption limit available to an assessee.

Step 4 - Calculate tax at the precribed rate on such amount computed under step 3 as if it is the total income.

Step 5 - Deduct the income tax calculated under step 4 from the income tax calculated under step 2.

Step 6 - The amount so arrived at will be the total income tax of an assessee.

Step 7 - Calculate surcharge if applicable, on the total income tax.

Step 8 - Add H&EC (Health and Education cess) at 4% on the total of income tax and surcharge.