KAIT Act 5Chapter III · Computation of Agricultural Income

Section 5 · Computation of Agricultural Income

- The agricultural income of a person shall be computed after making the following deductions, namely: -(a)(i)any sum paid in the previous year on account of land revenue or any tax in lieu thereof due to the Government;(ii)local rates and cess and municipal taxes in respect of the land from which the agriculture income is derived;(b)any rent paid in the previous year in respect of the land from which the agricultural income is derived;(c)any expense incurred in the previous year on the maintenance of any irrigation or protective work constructed for the benefit of the land from which the agricultural income is derived.Explanation. - "Maintenance" includes repairs and all such work, as may be necessary from year to year for repairing any damage or destruction caused to protective dykes and embankments by flood or other natural causes;(d)any expenses incurred in the previous year on repairs in respect of any capital asset which was purchased or constructed for the benefit of the land from which agricultural income is derived;(e)any interest paid in the previous year on any amount borrowed and actually spent on any capital expenditure incurred for the benefit of the land from which the agricultural income is derived;(f)any interest paid in the previous year on any debt, whether secured or not incurred for the purposes of acquiring the land from which the agricultural income is derived;(g)any interest paid in the previous year in respect of agricultural loans taken and expended on the land from which agricultural income is derived;(h)any interest paid on any amount borrowed and actually spent for the purpose of reclaiming, improving or cultivating the property from which agricultural income is derived;(i)any sum paid to an employee as bonus or commission for services rendered for deriving agricultural income where such sum would not have been payable to him as profit or dividend, if it had not been paid as bonus or commission:Provided that the deduction in respect of bonus paid to an employee employed in factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (Central Act 21 of 1965), apply, shall not exceed the amount of bonus payable under that Act:Provided further that the amount of bonus (not being bonus referred to in the preceding proviso) or commission is reasonable with reference to:-(i)the pay of the employee and the conditions of his service;(ii)the profits for the previous year in question; and(iii)the general practice prevalent in similar cases ;(j)the amount of any debt or part thereof, which is proved to have become a bad debt in the previous year, subject to the following conditions, namely:-

(1)

no such deduction shall be allowed unless such debt or part thereof-

(i)

has been taken into account in computing the agricultural income of the assessee of that previous year; or of an earlier previous year; and

(ii)

has been written off as irrecoverable in the accounts of the assessee for that previous year;

(2)

any such debt or part thereof may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year not falling beyond a period of four years immediately preceding the previous year, but the Agricultural income tax Officer, had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year:Provided that any amount received in respect of bad debts written off in any year shall be deemed to be agricultural income of the year in which it is received and shall be liable to tax;

(k)

any sum paid during the previous year to an employee as gratuity in accordance with the provision of the payment of Gratuity Act, 1972 (Central Act 39 of 1972) less such amount if any claimed in any previous year towards provision for gratuity in respect of such employee;

(l)

any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of deriving the agricultural income;

(m)

such other deductions including replantations allowance, subject to such limits, conditions or restrictions as may be prescribed generally or in particular cases;

(n)

in the case of agricultural income derived from land referred to in sub-clause (a) of clause (1) of Section 2-

(i)any expenses incurred in the previous year in the collection of agricultural income;

(ii)any expenses incurred in the previous year on account of repairs in respect of any capital asset used in connection with the collection of rent due in respect of the land from which the agricultural Income is derived;

(o)

in the case of agricultural income referred to in sub-clause (b) of clause (1) of Section 2-

(i)the expenses other than capital expenditure, incurred in the previous year for cultivating the crop from which the agricultural income is derived and for transporting such crop to market including the, maintenance of agricultural implements and cattle required for such cultivation and transport or both;

(ii)any tax, cess or rate paid on the cultivation or sale of the crop from which such agricultural income is derived;

(iii)the cost incurred in the previous year in the purchase or replacement cattle or implements, which are necessary for cultivation, to such extent, as may be prescribed, less the amount realised by sale of the cattle or implements replaced or their estimated value;

(iv)any sum paid in the previous year in order to effect:-

(1)an insurance against loss or damage of crops or property from which the agricultural income is derived or an insurance against loss or damage in respect of building machinery, plant and furniture necessary for the purpose of deriving agricultural income;

(2)emergency risk insurance, workmen's compensation insurance, money in transit insurance, case in safe insurance, consequential loss of profit insurance or personal accidents insurance for the purpose of deriving agricultural income;

(v)any expenses incurred in the previous year on the maintenance of any capital asset if such maintenance is required for the purpose of deriving the agricultural income:

Provided that no deduction shall be made under this Section if it has already been made in the assessment under the income Tax Act, 1961 (Central Act 43 of 1961);

(p)Nothing contained in this Section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income is derived during the previous year.

Explanation I. - For the purpose of this section 'paid' means actually paid or incurred according to the method of accounting, on the basis of which agricultural income is computed under this section;Explanation II. - In the case of any deduction towards gratuity or bonus, the deduction shall be allowed in the year in which actual payment is made to the employee or to any fund recognised in this behalf by the Government irrespective of the method of accounting employed less any deduction already allowed in the previous year or years in respect of the employee. 7Gratuity and bonus paid before the submission of return will be allowed as deduction in the previous year to which the return relates.

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