Definition of Agriculture Income for Tax Exemption
Definition of Agriculture Income for Tax Exemption. The Federal Board of Revenue (FBR) has provided an explanation of agricultural income to allow for exemptions under the Income Tax Ordinance, 2001.
Is Agriculture Income in Pakistan is Exempt from Tax?
Agricultural income is an exempt income from tax under section 41 of the Income Tax Ordinance, 2001. Such exemption from tax under ITO 2001 ( section 41 & section 111(1)(d) ), is available only when agriculture income is charged to tax under provincial law.
According to FBR the exemption of agricultural income from tax is guaranteed under the Pakistani constitution. This means that the federal government does not have the authority to collect tax on such income. However, provincial governments have the power to levy taxes on agricultural income.
Definition of Agriculture Income Under Income Tax Ordinance 2001
According to the Section 41 of Income Tax Ordinance 2001, agricultural income includes:
- Any rent or revenue derived by a person from land situated in Pakistan used for agricultural purposes.
- Any income derived by a person from land situated in Pakistan, including income from agriculture, the performance of any process used to make the produce raised or received by the person fit for market, or the sale of the produce raised or received by the person without any additional processes.
- Any income derived by a person from any building owned and occupied by the receiver of rent or revenue of any land described in (1) or (2) above or any building occupied by the cultivator or receiver of rent-in-kind in connection with the land for purposes such as a dwelling house, storehouse, or other out-building.
When Agriculture Income is taxable?
It is important to understand that while agricultural income is exempt from federal income tax, provincial governments have the power to levy taxes on such income. Therefore, taxpayers engaged in agricultural activities should be aware of the tax laws of their respective provinces and they should do compliance on them.
It is crucial for taxpayers to stay informed about tax laws and regulations to ensure that they comply with them and avoid any legal issues.
Tax on Agricultural Income in Pakistan 2022 (THE PUNJAB AGRICULTURAL INCOME TAX ACT 1997)
In Punjab, the taxation of agriculture income is administered under the provincial law of “The Agriculture Income Tax Act 1997“. Under such Act, Agriculture Income is taxed by any of the following two methods;
AREA or LAND BASED: Agriculture Income taxed based on acres.
INCOME BASED:
Agriculture income tax based on Income computed under clause 4 of the Act (as per schedule 2).
Tax Payable Basis: Whichever is higher.
The said ACT, also allows the taxpayers to pay such agriculture income tax through their agriculture income declared in ‘Income Tax Return’ (ITR) (as per schedule 2 –Income based).
Exemptions from Provincial Agriculture Income Tax
If area is below than 12.5 acres then area wise tax is also exempt. Agriculture Income is exempt up to 400,000, as per the Act “The Punjab Agricultural Income Tax Act 1997”.
Rate of tax on total agricultural income as per acre (Land / Area Based Rate of Tax)
Land-based or area based tax is assessed on the basis of the Cultivated Land Area. The rate of tax is based on the number of Acre as irrigated land. If the cultivated land is unirrigated then one acre of irrigated land is equal to two-acre of unirrigated land. Tax on unirrigated land is half of the irrigated land.
| S.No | Land / Area | Rate of Tax |
|---|---|---|
| 1 | 12.5 acres land ownership | No Tax |
| 2 | 12.5 acres to 25 acres | Rs.300 per acre |
| 3 | 26 acres to 50 acres | Rs.400 per acre |
| 4 | 50 acres or more | Rs.500 per acre |
| (2) Mature orchards | ||
| Irrigated | Rs 600 per acre | |
| Unirrigated | Rs 300 per acre |
Note: 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.
Mature Orchard” means orchard of the age of seven years or more in the case of mango orchard and of the age of five years or more in the case of other orchards;
RATES OF TAX ON TOTAL AGRICULTURAL INCOME – Income Based
THE SECOND SCHEDULE [SEE SECTION 3(3)]: Under The Punjab Agriculture Income Tax Act 1997, Agriculture Income consists of any rent, revenue or income derived from land which is situated in Punjab and is used for agricultural purposes as reduced by permissible allowances and deductions. Taxable agriculture income of a person for the tax year will be calculated as below:
| S.NO | Agriculture Income Slab | Tax Rate (%) |
|---|---|---|
| 1 | If total income does not exceed Rs.400,000/= | 0% |
| 2 | If total income is more than Rs.400,000 but does not exceed Rs.800,000/= | Rs.1,000 |
| 3 | If total income is more than Rs.800,000 but does not exceed Rs.1,200,000/= | Rs.2,000 |
| If total income is more than Rs.1,200,000 but does not exceed Rs.2,400,000/= | 5% of the amount exceeding Rs 1,200,000 | |
| If total income is more than Rs.2,400,000 but does not exceed Rs.4,800,000/= | Rs 60,000 plus 10% of the amount exceeding Rs 2,400,000 | |
| 4 | If total income is more than Rs.4,800,000/= | Rs 300,000 plus 15% of the amount exceeding Rs 4,800,000 |
