Professional Documents
Culture Documents
Agricultural Income
Agricultural Income
Agriculture
Agricultural income earned by a taxpayer in India is exempt under Section 10(1) of the
Income Tax Act,1961. What is more shocking and surprising is that this so-called
agricultural income is tax-free without any limit.
Agriculture is not the main source of income of farmers in Bangladesh, a country with
agriculture as its economic base, according to a government study.
Major part of income of families of the farmers now comes from non-agro sectors, while
their earning from agriculture sector amounts to only 38 percent.
The rest 62 percent of their income comes from service, industry, trade, various types of
rents, remittance, sale of labor in non-agro sector, and transport business.
Presently just 13 percent of the families of the farmers are fully dependent on
agriculture.
The farming families in Rangpur earn the highest from the agriculture sector. Their
income from agriculture stands at Tk. 92,522, which is Tk. 15,000 higher than the income
of the farmers in other parts of the country.
The farmers in Chattogram earn the highest (Tk. 1, 63, 798) from the non-agro sector.
Source: Report on the Agriculture and Rural Statistics 2018, Bangladesh Bureau of
Statistics (BBS)
Scope of Agricultural Income
According to Section 2(1) of the Income Tax Ordinance, 1984, ‘agricultural income’
means
• any income derived from any land in Bangladesh and used for agricultural purposes–
(a) by means of agriculture; or
(b) by the performance of any process ordinarily employed by a cultivator to render
marketable the produce of such land; or
(c) by the sale of the produce of the land raised by the cultivator in respect of which
no process, other than that to render the produce marketable, has been performed;
or
(d) by granting a right to any person to use the land for any period; or
• any income derived from any building which-
(a) is occupied by the cultivator of any such land as is referred to in sub-clause (a) in
which any process is carried on to render marketable any such produce aforesaid;
(b) is on, or in the immediate vicinity of such land; and
(c) is required by the cultivator as the dwelling house or store-house or other out-
house by reason of his connection with such land.
Scope of Agricultural Income
Gain from the sale of the machinery or plant exclusively used for agricultural purpose –
Here such a gain is the excess of sale proceeds over written down value of any
machinery or plant exclusively used for agricultural purpose. But it is to be noted here
that, such a gain cannot be more than the difference between original costs and written
down value of the machinery or plant [Section – 19(17)].
Land Building
Cost of Production
(a) for cultivating the land or raising livestock
thereon
No (b) for performing any process ordinarily employed
by a cultivator to render marketable the produce
of the land
(c) for transporting the produce of the land or the
livestock raised thereon to the market and
Sixty per cent of (d) for maintaining agricultural implements and
the market value machinery in good repair and for providing
of the produce of upkeep of cattle for the purpose of cultivation,
the land processing or transportation as aforesaid
No deduction on account of cost of production shall be admissible if the agricultural
income is derived by the owner of the land from the share of the produce raised
through any system of sharing of crop generally known as adhi, barga or bhag
Admissible Expenses – Depreciation
Rate of depreciation: [As per the Third Schedule]
Assets Rate
1. Pucca building 10%
2. Kutcha and 15%
3. Kucha building 20%
4. Temporary structure N/A*
5. Pucca walls 5%
6. Fencing of substantial material 10%
7. Tube-well 15%
8. Tanks 10%
9. Pucca irrigation channel 15%
10. Kucha irrigation channel 20%
11. Kucha irrigation wells 33.33%
12. Pucca irrigation wells 5%
13. Bullock drawn iron implements 15%
14. Bullock drawn wooden or leather implements and small other hand/implements 25%
15. Weighing machine 10%
16. Tractors and oil engines and thin implements 15%
17. Power pumping machinery 20%
18. Factor made cart of iron material with rubber tyre 15%
19. Country cart 20%
20. Steam engine 10%
21. Workshop tools 15%
22. Others (machinery, implements, plants and other assets) 10%
Gain on Assets
Situation 1: Gain on sale of any machinery or plant used for agricultural purposes
Situation 2: Gain on any machinery or plant used exclusively for agricultural purposes
which has been discarded, demolished or destroyed and on which insurance or
compensation money has been received
Maximum Limit of Gain: Original Costs – [Written Down Value – Scrap Value]
Loss on Assets
Situation 1: Loss on any machinery or plant used exclusively for agricultural
purposes which has been discarded, demolished or destroyed and on which no
insurance or compensation money has been received
Example 2: Mr. Bisu is the owner of a pump machine which was purchased for Tk. 40,000. Now to
acquire an advance technology in the irrigation plant he sold the pump machine for Tk. 42,000. At the
time of sales the amount of accumulated depreciation of the pump machine was Tk. 18,000.
Agricultural income from the sale proceeds should be:
Cost of the machine : Tk. 40,000
Accumulated Depreciation (at the time of sale) : Tk. 18,000
Written down value : Tk. 22,000
Sale proceeds : Tk. 42,000
Total gain : Tk. 20,000
Capital gain [Sale proceeds – Cost price] : Tk. 2,000
Gain to be considered as agricultural income
[Total gain – Capital gain] : Tk. 18,000
Set-Off and Carry-Forward of Losses
According to Section 37 of the ITO, 1984, any loss from agriculture can be set
off against his income from any other head excluding “Capital Gain”. According
to Section 41 of the ITO, 1984, where, for any assessment year, such loss has
not been so set off, it shall be carried forward to the next following assessment
year, and
•it shall be set off against agricultural income, if any, of the assessee assessable
for that assessment year; and
•if the loss cannot be wholly so set off the amount not so set off shall be
carried forward to the next assessment year and so on for not more than six
successive assessment years.
Decision Rule
Does the assessee Adjust such losses against
Set
have income from Yes income from other sources
any other sources? except ‘Capital Gain’ Off
Any income thus including agricultural income of an indigenous hillman of any of the hill
districts of Rangamati, Bandarban and Khagrachari, which has been derived solely from
economic activities undertaken within the said hill districts [Sixth Schedule, Part A, Para
27].
Concept Check
Assessable Assessable
Sale of agricultural produce If agricultural production is
Income from building used for made for self-consumption,
agriculture without any commercial
Agricultural Income from borga, adhi, bhag motive
Income Gain on sale of assets
Income from tea, rubber, Upto Tk. 200,000 if agriculture
tobacco, sugar etc. is the only course of income
Income from poultry, fisheries,
honey, floriculture, sericulture, Any income of indigenous
horticulture, cattle rearing etc. hillman from selective areas
Reduced Tax Rate
Any income from production of pelleted poultry feed, production of pelleted feed for
fish, shrimp & cattle, production of seeds, marketing of locally produced seeds, cattle
farming, dairy farming, frog farming, horticulture, Silk tree plantation, Bee keeping, Silk
worm firming, mushroom farming, floriculture is taxable at a reduced tax rate as
follows:
Income Tax Rate
On first Tk. 10 lac 3%
On next Tk. 20 lac 10%
For the rest of the amount 15%
Reduced tax rate on income from Poultry, Shrimp & fish hatchery, fisheries Firm:
Income Tax Rate
On first Tk. 10 lac nil
On next Tk. 10 lac 5%
For the rest of the amount 10%
Specimen Format
Income from Agriculture (Section – 26 & 27): Tk. Tk.
Sale of crops XX
Income from any land or building used for agricultural purposes XX
Income from granting a right [‘Borga’, “adhi” or “bhag”] XX
Income from tea garden or rubber garden [60%] XX
Revenue profit by sale of discarded or demolished agri. machines XX
Other income relating to agri. [sale of palm juice, rearing of cattle] XX XX
Less: Admissible expenses –
(a) Land development tax XX
(b) Any other taxes [local taxes, cess etc] XX
(c) Production costs [If proper books kept – actual, otherwise 60% of sale XX
proceeds]
(a) Insurance Premium XX
(b) Repair and Maintenance of irrigation plant XX XX
(c) Depreciation XX
(d) Interest on Mortgage Loan XX
(e) Interest on Borrowed Capital XX
(f) Losses due to sale of cultivable land XX
(g) losses due to discard or demolish of agri. machineries XX
(h) Other revenue expenses XX
Total Income XX
Less: Exemption (if agriculture is the only source of income) 200,000
Total Taxable Income XX
Problem 1
Mr. Rahman is a farmer whose only income is from agriculture. Compute taxable income
for Mr. Rahman for the year ended on 30th June, 2020 considering: Sale of rice 150
maunds @ Tk. 710 per maund; Sale of potato 300 maunds @ Tk. 150 per maund;
Income from Borga Tk. 40,000; lease of agricultural land Tk. 300,000.
Expenses relating to all these income are: Cost of seeds and fertilizer Tk. 36,500; labor
charge Tk. 40,000; maintenance costs of agricultural equipments Tk. 4,000; union
parisad tax Tk. 5,800; crop insurance premium Tk. 8,200; depreciation on tractor @ 20%
Tk. 14,000. Mr. Rahman has borrowed fund from Krisi Unnayon Bank by Tk. 40,000 at an
annual interest rate of 15% on 15th October 2019. Allowable depreciation for tractor as
per the 3rd Schedule of the ITO, 1984 is at the rate of 15%. Cost of seeds and fertilizer
includes Tk. 1,500 spent against Borga. He maintains books of accounts properly.
Solution 1
Mr. Rahman
Income year: 2019 – 2020; Assessment year: 2020 – 2021
Calculation of Total Income
When the income tax authority asked for books of accounts regarding cultivation expenses, Mr.
Adib failed to provide proper records for Jute. Other related expenses for the year were: Union
parisad tax Tk. 2,000; land revenue Tk. 1,000; crop insurance premium Tk. 2,500; Allowable
depreciation Tk. 5,000; and maintenance cost of irrigation plant Tk. 4,000. He had a pump machine
which was purchased at Tk. 25,000. It has become obsolete and has been discarded at Tk. 12,000.
The written down value after charging depreciation on the basis of prescribed rate at the ITO, 1984
estimated at Tk. 10,000. He has taken agricultural loan of Tk. 50,000 @ 8% interest per annum.
Solution 4
Income from Agriculture (Section – 26 & 27): Tk. Tk. Tk.
Sale of rice (250 × 600) 150,000
Sale of Jute (100 × 400) 40,000
Sale of rabi crops 50,000
Yearly lease of agricultural land 20,000
Income from tea garden (30,000 × 60%) 18,000
Income from rubber garden (40,000 × 60%) 24,000
Income from Tobacco industry (30,000 × 60%) 18,000
Income from Sugar industry (50,000 × 60%) 30,000
Income from cattle rearing 3,000
Income from sale of Palm and Date juice 6,000
Income from sale of honey 5,000
Gain from sale of obsolete equipment 2,000 366,000
Less : admissible expenses
1. Production expenses 59,500
1. Union parisad Tax 2,000
1. Land Revenue 1,000
1. Crop insurance premium 2,500
1. Allowable Depreciation 5,000
1. Maintenance cost of irrigating plant 4,000
1. Interest from borrowed fund (50,000 × 8%) 4,000 78,000 288,000
Income from Business or profession:
Income from tea garden (30,000 × 40%) 12,000
Income from rubber garden (40,000 × 40%) 16,000
Income from Tobacco industry (30,000 × 40%) 12,000
Income from Sugar industry (50,000 × 40%) 20,000 60,000
Income from Other Sources
Sale of forest timber and bamboo 6,000
Total Income 354,000
Problem 5
Compute taxable income and tax liability of Mr. Taleb Ali, from for the income
year ended on 30th June, 2020 considering his income from the following
sources:
Sale of Paddy 1,000 maunds @ Tk. 400 per maund; sale of Jute 500 maunds @
Tk. 600 per maund sale of Rabi Crops Tk. 160,000; income from lease of
agricultural land; Tk. 100,000; income from Fisheries Tk. 125,000; income from
mushroom farming Tk. 130,000; income from Sale of tea Tk. 200,000; and
income from Dairy farming Tk. 120,000.
He didn’t maintain the books of accounts properly but claimed expenses for
production costs Tk. 200,000; land revenue paid Tk. 8,000; interest on loan Tk.
2,500; union parisad tax Tk. 4,000; Purchase of tractor Tk. 70,000; and
maintenance of the irrigation plant Tk. 12,000. In addition to it, during the year
Mr. Taleb Ali also incurred investments and expenses, which includes: family
expenses Tk. 50,000; life Insurance premium (policy value Tk. 200,000) Tk.
25,000; purchase of cow for dairy firm Tk. 125,000; donation to prime
minister’s higher education fund Tk. 20,000; purchase of 5 year Bangladesh
Savings Certificate Tk. 100,000; donation to Government Zakat fund Tk. 30,000;
and purchase of gold Tk. 27,000.
Solution 5
Mr. Masum
Income year: 2019 – 2020; Assessment year: 2020 – 2021
Calculation of Total Income
Income from Agriculture (Section – 24): Tk. Tk. Tk.
Income from sale of Paddy (1,000 × 400) 400,000
Income from sale of Jute (500 × 600) 300,000
Sale of Rabi Crops 160,000
Income from lease of agricultural land 100,000
Income from Sale of tea (200,000 × 60%) 120,000
Income on which reduced tax rates are applicable: 1,080,000
Income from fisheries 125,000
Income from mushroom farming 130,000
Income from dairy farming 120,000 375,000
Less: Admissible expenses: 1,455,000
1. Production costs 516,000
2. Land revenue paid 8,000
3. Interest on loan 2,500
4. Union parisad tax 4,000
5. Maintenance of kutcha irrigation plant 12,000 542,500
Income from Agriculture 912,500
Income from Business and Profession :
Income from Sale of tea (200,000 × 40%) 80,000
Total 992,500
Solution 5
Computation of Investment Allowance
Insurance premium (own) Tk. 25,000
Maximum limit: 2,00,000 X 10% 20,000 Tk. 20,000
Donation to PM’s higher education fund 20,000
Purchase of 5 year Bangladesh Savings Certificate 100,000
Donation to Government Zakat fund 30,000
Actual Investment 170,000
Maximum limit of investment:
Lower of Tk. 15,000,000 and 25% of total income i.e., 25% of (992,500 – 375,000)
or Tk. 154,375. As actual investment is Tk. 175,000, investment allowance allowed
for tax credit is on Tk. 154,375 @ 15% i.e., investment tax credit is Tk. 23,156.
Computation of Tax Liability
Rate Tk.
On the first Tk. 3,00,000 0% Nil
On the next 1,00,000 5% 5,000
On the next 2,17,500 10% 21,750
On reduce rate income 3,75,000 0% Nil
Total 9,92,500 26,750
Less: investment tax credit 23,156
Net tax liability 3,594
Department of Business Administration
East West University