Bcoc-136 Income Tax Law and Practice Unit-2 Basic concept-2

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Bcoc-136 Income Tax Law and Practice 

Unit-2 Basic concept-2

Definition of Agricultural Income:

Any rent or revenue derived from land which is situated in India ,the land must be used for agricultural purposes.

Kinds of Agricultural Income:

1. Any rent or revenue derived from land:

Rent or revenue from land situated in India and used for agricultural purposes. This can be received in cash or kind and the recipient doesn’t necessarily have to be owner of the land

  1. Income derived from such land by agriculture or Manufacturing process:

    • Agricultural income includes income derived from agriculture

    • Process employed by a cultivator to make produce marketable

    • Sales by cultivator with out further processing except what is ordinary employed

    • (“such land means”:-situated in India used for agricultural purposes and income derived from it )

  2. Income from Agricultural house property or Farm building

    • The building is owned and occupied by the receiver of rent or revenue from such land

    • The building is on or in the immediate vicinity or agricultural land in India

      Non- Agricultural income:

  1. Interest on securities

  2. Income from property not used for agriculture

  3. Income from letting out buildings on or near agricultural

    land from non- agricultural purposes

  4. Dividend paid out of profit derived from non-agricultural

    activities

  5. Income from poultry farming and diary farming

  6. Income from sale of forest trees, excluding forest produce

  7. Income from sale of wild grass

  8. Bee hiving

  9. Sale of fish from fish pond or tank etc,....

Partially Agricultural income:

Where income is partially agricultural and partially from other source

  • Growing and manufacturing Tea ,Coffee and Rubber

  • 40%of income from the sale of Rubber is agricultural 60%

    of income from non-agriculture

  • 60%of income from sale of tea is agricultural and 40% is

    non-agricultural

  • 25%of income from sales of Coffee grown and cured by

    the seller is agriculture

    Integration of agricultural income with non-agricultural income: There is no tax on agricultural income but if assessee earns both agricultural as well as nonagricultural income then :

  • Agricultural income is added in his total income for computing of income tax on-non agricultural income this concept is called “partial integration of agricultural income with non-agricultural income”

  • Conditions are:-net agricultural income exceed rs 5,000

  • Non-agricultural income of assesee exceeds the exemption limit of Rs2,5000 in case of individual

  • Its applicable only in individual ,HUF, AOPL ,BOL and Artificial Juridical person

  • Individual who is resident in India and the age of 60 years or more less than 80 years at any time during the previous year , the maximum exemption limit shall be Rs3,00,000 instead of 2,50,000

    Step of Computation tax when there is agricultural income along with non-agricultural income:

    • Add agricultural and nonagricultural income and calculate the aggregate

    • Add agricultural income to the maximum exemption limit available and compute tax on such amount as if its total income

      Concept of casual income:

      Casual income:-is irregular and non-recurring income that you receive occasionally, such as from lottery winnings, game show prizes, or one-time awards. It's not earned from your regular job or business.

      Kinds of Casual income:-

      1. Lottery Winnings-: Earnings from lotteries, sweepstakes, or other games of chance.
      2. Game Show Prizes:- Cash or goods received from winning game shows or contests.

      3. Awards:- Non-recurring awards or prizes not related to regular employment or business.
      4. Raffle Prizes:- Income from raffle draws or similar events.

5. Gifts:- Gifts from non-relatives exceeding ₹50,000, which are considered taxable under specific conditions.

Casual Income Tax Treatment in India:

Casual income, such as lottery winnings, game show prizes, and non-recurring awards, falls under the category of "Income from Other Sources" in the Income Tax Act.

1. Tax Rate: Casual income is taxed at a flat rate of 30% plus applicable cess and surcharge, regardless of the individual's overall income.

2. Reporting: It must be reported in the "Income from Other Sources" section of the Income Tax Return.

3. TDS: For certain types of casual income, such as lottery winnings, tax is often deducted at source (TDS) by the payer.

4. No Deductions: Casual income is not eligible for deductions or exemptions available for other types of income.

Accurate reporting and compliance are essential to avoid penalties.

Capital and Revenue Receipts/Income:

Capital and Revenue Receipts/Income are key concepts in accounting and taxation that differentiate between various types of inflows and their treatment in financial statements and tax returns.

1. Capital Receipts

  • Definition: Capital receipts are funds received by a business that are not intended for day-to-day operations and do not impact the profit or loss directly. They typically relate to the financing of the business and are usually non-recurring.

  • Examples:
    1. Issue of Shares: Funds received from issuing new shares. 2. Loans and Borrowings: Money received from banks or other financial institutions as loans.
    3. Sale of Fixed Assets: Proceeds from selling long-term assets like machinery, buildings, or land.
    4. Government Grants: Funds received from the government for specific purposes, such as infrastructure development.

    • TaxTreatment:
    - Generally, capital receipts are not taxed as income. However, gains from the sale of capital assets (like property) are subject to capital gains tax.

    2. Revenue Receipts

  • Definition: Revenue receipts are funds received as part of the routine operations of a business. They are recurring and directly impact the profit or loss of the business.

  • Examples:

1. Sales Revenue: Income from selling goods or services. 2. Interest Income: Earnings from investments or bank deposits.
3. Rental Income: Income from renting out property.

4. Fees and Charges: Income from providing services, such as consultancy or advisory fees.

• TaxTreatment:
- Revenue receipts are included in the business’s taxable income and are subject to regular income tax. They are recorded in the profit and loss account.

• KeyDifferences

1. Purpose:
- Capital Receipts: For financing or investment purposes. - Revenue Receipts: For regular business operations and

services.

2. Frequency:
- Capital Receipts: -Usually non-recurring or irregular. - Revenue Receipts:- Regular and recurring.

3. Impact on Financial Statements:
- Capital Receipts: Do not affect the profit and loss

account directly but may affect the balance sheet.
- Revenue Receipts: Affect the profit and loss account,

impacting net income.

Understanding these distinctions is crucial for accurate accounting and tax reporting.


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