Agricultural Income: Sec.

26 & 27 Scope: Agricultural income defined u/s 2(1) - Income from agricultural land in Bangladesh - Income from building in Bangladesh used for agricultural purposes Deemed agricultural income: - Revenue gain on sale/disposal of agricultural assets u/s 19(17) [see sec. 27(1)(j)] - Compensation/insurance recovery for destruction of agricultural assets u/s 19(19) [see sec. 27(1)(i)] Partially agricultural income: Rules 30, 31 & 32 - Income from tea (Rule 31): 60% income is agricultural - Income from rubber (Rule 32): 60% income is agricultural - Income from agricultural produce other than tea or rubber (Rule 30): agricultural income equals to cost of agricultural raw materials used contained in the cost of goods sold Exempted agricultural income: Part A, Sixth Schedule

Para-29: Agricultural income up to Taka 50,000 when only source of income is agriculture

List of deductions: sec. 27 (a) Land development tax or rent [u/s 27(1)(a)] (b) Tax, local rate or cess (other than income tax) [u/s 27(1)(b)] (c) Cost of production [u/s 27(1)(c)]: - Actual cost, if books of accounts maintained properly, on cultivation cost, ordinary processing

cost, transportation cost, and repair and maintenance cost - 60% of the market value of the produce, if books of accounts are not maintained properly - Zero, if sharecropping
(d) (e) (f) (g) (h) (i) (j) (k)

Insurance premium [u/s 27(1)(d)] Maintenance of irrigation or protective work [u/s 27(1) (e)] Depreciation on agricultural assets as per Third Schedule [u/s 27(1)(f)] Mortgage or other capital charge [u/s 27(1)(g)] Interest on borrowed capital [u/s 27(1)(h)] Revenue loss on agricultural assets discarded, demolished or destroyed [u/s 27(1)(i)] [related to sec. 19(19)] Revenue loss on sale or transfer of agricultural assets [u/s 27(1)(j)] [related to sec. 19(17)] Omnibus clause [u/s 27(1)(k)]: any expenditure, not being in capital/personal nature, exclusively incurred for agricultural purposes
Limitation: Notwithstanding anything contained in sub-section (1), no deduction shall be allowed under this section in respect of any interest on which tax has not been paid or deducted in accordance with the provisions of Chapter VII [u/s 27(2)].

Example
Mr. X is a cultivator residing in Bogra. He also owns a Cigarette Company [Ex Tobacco Ltd.]. Below is a description of his annual income for the income year ending on 30 June 2011. (1) Particulars of Agricultural Income other than income from Taka Tobacco: (a) Income derived from the agricultural land (i) by means of agriculture 5,000 (ii) by the performance of any process ordinarily employed by a 8,000 cultivator to render marketable the produce of the agricultural land (iii) by the sale of the agricultural produce of the land raised by 400,000 the cultivator in respect of which no process, other than that to render the produce marketable, has been performed (iv) by granting a right to any person to use the land for any 50,000 period (b) Income derived from his building (used for agricultural purposes) 37,000 Mr. X has claimed the following deductions: (a) land development tax, Tk. 5,000; (b) rates imposed by Union Parishad, Tk. 4,000; (c) crop insurance premium, Tk. 9,000; (d) cost of the maintenance of any irrigation, protective work and other capital assets, Tk. 7,000; (e) depreciation as per the Third Schedule in respect of irrigation, protective work and other capital assets, Tk. 35,000; (f) interest on mortgage of the land, Tk. 15,000; (g) honorarium of a caretaker-cum-bookkeeper, Tk. 24,000; (h) cost of production for which the caretaker-cum-bookkeeper has maintained proper books of accounts is applicable only for 30% of the agricultural produce and its break-up is as follows: (i) cost for cultivating the land or raising livestock thereon, Tk. 45,000; (ii) cost for performing any process ordinarily employed by a cultivator to render marketable the produce of the land, Tk. 54,000; (iii) cost for transporting the produce of the land and the livestock raised thereon to the market, Tk. 15,000; and (iv) cost for maintaining agricultural implements and machinery in good repair and for providing upkeep of cattle for the purpose of cultivation, processing and transportation as aforesaid, Tk. 8,000; (i) cost of production for which no proper books of accounts have been maintained is approximately Tk. 150,000. Other information: One tractor was sold during this income year (2010-11) for Tk. 20,000. The cost and accumulated depreciation were Tk. 30,000 and Tk. 11,576 respectively.

(2) Particulars of income from Tobacco: Following is the income statement of Ex Tobacco Ltd. accepted by the tax authority for concerned income year (2010-11). Net Sales of Cigarettes Taka Taka Taka 910,000 Cost of Goods Sold: Cost of Tobacco Consumed Cost of Tobacco Produced 100,000 Cost of Tobacco Purchased 200,000 300,000 Direct Labour 150,000 Factory Overhead 85,000 535,000 Gross Profit 375,000 Less: Operating Expenses 262,500 Net Profit 112,500 Required: Compute total income and tax liability of Mr. X for AY 2011-12.

Solution:
(1) Particulars of Agricultural Income other than income from Tobacco: Taka (a) Income derived from the agricultural land (i) by means of agriculture 5,000 (ii) by the performance of any process ordinarily employed by a 8,000 (iii)
cultivator to render marketable the produce of the agricultural land by the sale of the agricultural 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 by granting a right to any person to use the land for any period

400,000 50,000 463,000 37,000 500,000

(b)

(iv) Income derived from his building (used for agricultural purposes)

Less: Deductions u/s 27(1) (a) Land development tax (b) Rates imposed by Union Parishad (c) Crop insurance premium (d) Cost of the maintenance of any irrigation, protective work and other capital assets (e) Depreciation as per the Third Schedule (f) Interest on mortgage of the land (g) Honorarium of a caretaker-cum-bookkeeper (h) Cost of production For 30% of Agricultural Income from Produce: (i) cost for cultivating the land or raising livestock thereon
(ii) (iii) (iv)

5,000 4,000 9,000 7,000 35,000 15,000 24,000

cost for performing ordinary process cost for transporting cost for maintaining agricultural implements and machinery

45,000 54,000 15,000 8,000 122,000

For 70% of Agricultural Income from Produce: 60% of Market Value of the Agricultural Produce [70% x 400,000 x 60%]

168,000

290,000

389,000 111,000 1,576 100,000 212,576 12,500 225,076

(i) Revenue gain from sale of tractor [20,000 -(30,000-11,576)] (j) Agricultural income from Tobacco Total Agricultural Income Income from Business or Profession u/s 28 [112,500-100,000] Total Income