Agricultural Income and its Taxation in Punjab
The agricultural income has been exempt from tax under Income Tax Ordinance, 2001. Agriculture Income is defined and explained under section 41 of ITO, 2001. Reproduced as under: –
“Agricultural Income” means:
- any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes;
- any income derived by a person from land situated in Pakistan from:
- the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or
- the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or
- any income derived by a person from:
- any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);
- any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on,
But only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a store-house, or other out-building.
But the same Ordinance requires agriculture income should be taxed under relevant provincial law to claim the EXEMPT status under section 41of the Ordinance, under provisions of section 111(1)(d) of the ITO, 2001. In its absence no such exemption is available.
Therefore, provincial law on agriculture income have fundamental importance to conclude on whether such income is exempt from tax or not, while computing individual income tax liability under the provisions of ITO, 2001.
THE PUNJAB AGRICULTURAL INCOME TAX ACT 1997
In Punjab territory this Act plumps taxation on Agriculture Income.
Under this Act, Agriculture Income is taxed either of following ways;
Agriculture income taxed based on acres (as per first schedule produced here as under)
The First Schedule
See Section 3 (1)
|(1) Slab of total cultivated land, computed Rate of tax per acre as irrigated land, by treating one acre of irrigated land as equal to two acre of unirrigated land, excluding mature orchards.||Rate of tax per acre|
|(i) Not exceeding 12½ acres||Nil.|
|(ii) Exceeding 12½ acres but not exceeding 25 acres||Rs. 300/-|
|(iii) Exceeding 25 acres but not exceeding 50 acres||Rs. 400/-|
|(iv) Exceeding 50 acres||Rs. 500/-|
|(2) Mature orchards|
|(i) Irrigated||Rs. 600/-|
|(ii) Unirrigated||Rs. 300/-]|
Agriculture income taxed based on Income computed under clause 4 of the Act (as per second schedule)
|(1)||Where the total income does not exceed Rs.400,000/-||0%|
|(2)||Where the total income exceeds Rs.400,000/- but does not exceed Rs.800,000/-||Rs.1,000/-|
|(3)||Where the total income exceeds Rs.800,000/- but does not exceed Rs.12,00,000/-||Rs.2,000/-|
|(4)||Where the total income exceeds Rs.12,00,000/- but does not exceed Rs.24,00,000/-||5% of the amount exceeding Rs.12,00,000/-|
|(5)||Where the total income exceeds Rs.24,00,000/- but does not exceed Rs.48,00,000/-||Rs.60,000/- plus 10% of the amount exceeding Rs.24,00,000/-|
|(6)||Where the total income exceeds Rs. 48,00,000/-||Rs.300,000/- plus 15% of the amount exceeding Rs.48,00,000/-]|
(Payable of basis of whichever is higher)
The said ACT, also allows the taxpayers to pay such agriculture income tax through their ITR (by computing tax as per schedule 2 –Income based) it is reproduced hereunder;
Quoted “3B. Tax on the basis of income tax return;
Notwithstanding the provisions of section 3, where any person has declared agricultural income for any assessment year in the return filed under the Income Tax Ordinance, 2001 (XLIX of 2001), the person shall pay the tax on such income at the rate specified in the Second Schedule.” Unquoted
In this regard, it is worth mentioning here that exemption was granted by provincial revenue authority in relation to provincial tax payable on agriculture income as per Second Schedule (Income Based) in a meeting held on October 15, 2016. So, only Area based agriculture tax is applicable since then in Punjab.
If area is below then 12.5 acres then area wise tax is also exempt; and
Agriculture Income is exempt up to 400,000, as per the Act.
Provided that no tax shall be payable on the first eighty thousand rupees of the aforementioned income.