Farm Income Tax in Pakistan 2022 | Latest Easy Tax Calculator
Farm income is tax-exempt income under section 41 of the Income Tax Ordinance 2001. Such tax exemption under ITO 2001 (Section 41 and Section 111(1)(d)) is only available where farm income is subject to tax under provincial law.
Farm Income Tax in Pakistan 2022 (THE PUNJAB AGRICULTURAL INCOME TAX ACT 1997)
In Punjab, taxation of agricultural income is administered under the provincial law of “The Farm Income Tax Act 1997“. Under this law, farm income is taxed in one of two ways;
ZONE or LAND: Farm income taxed on a per acre basis.
BASED ON INCOME:
Farm income tax based on income calculated under section 4 of the Act (as per Schedule 2).
Tax base: according to the highest value.
The said law also allows taxpayers to pay this agricultural income tax through their agricultural income declared in the “income tax return” (ITR) (according to schedule 2 – based on income).
Tax based on tax return ( 3B )
Notwithstanding the provisions of section 3, where a person has declared farming income for a tax year in the return filed under the Income Tax Order 2001, the person must pay the tax on this income at the rate specified in the second schedule.”
It is important to mention here that the exemption was granted by the provincial taxing authority in respect of the provincial tax payable on farm income in accordance with the second schedule (based on income) at a meeting held on October 15, 2016. Thus, only area/land based agricultural income tax is applicable since then in Punjab.
Provincial Farm Income Tax Exemptions
If the area is less than 12.5 acres, the area tax is also exempt. Farm income is exempt up to 400,000in accordance with “The Punjab Agricultural Income Tax Act 1997”.
Definition of “farm income” under the Income Tax Order 2001
(a) any rent or income derived by any person from land situated in Pakistan and used for agricultural purposes;
(b) any income derived by a person from land in Pakistan from –
(ii) the performance by a grower or recipient of a annuity in kind of any process customarily employed by that person to render the product grown or received by the person fit for sale on the market; Where
(iii) the sale by a grower or recipient of an annuity in kind of produce grown or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-paragraph sub-paragraph (ii); Where
(vs) any income derived by a person from —
(i) any building owned and occupied by the receiver of rent or revenue from any land described in paragraph (a) or (b);
(ii) any building occupied by the cultivator, or the receiver of a rent in kind, of any land in respect of which, or the proceeds of which, any transaction specified in sub-clauses (ii) or (iii) of clause (b) is exploited,
but only where the building is on the land or in close proximity to the land and is a building of which the receiver of rent or income, or the cultivator, or the receiver of rent in kind by reason of the person’s connection with the land , requires as a dwelling house, warehouse or other outbuilding.
Tax rate on total farm income per acre (tax rate based on land/area))
THE FIRST SCHEDULE [SEE SECTION 3(1)]
Land or surface tax is assessed on the basis of the area of cultivated land. The tax rate is based on the number of acres of irrigated land. If the cultivated land is not irrigated, one acre of irrigated land is equal to two acres of non-irrigated land. The tax on non-irrigated land is half of the irrigated land.
|S. No||Landing area||Tax rate|
|1||Landholding of 12.5 acres||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|
|Not irrigated||Rs 300 per acre|
To note: Slab of total cultivated land, calculated Tax rate per acre as irrigated land, treating one acre of irrigated land as equal to two acres of non-irrigated land, excluding mature orchards.
Mature orchard” means an orchard seven years old or more in the case of a mango orchard and five years old or more in the case of other orchards;
TAX RATES ON TOTAL FARM INCOME
THE SECOND APPENDIX [SEE SECTION 3(3)]
Under the Punjab Agricultural Income Tax Act 1997, agricultural income includes any rent, income or income derived from land situated in Punjab and used for agricultural purposes, less allowable allowances and deductions. A person’s taxable farm income for the tax year will be calculated as follows:
|S.NO||Farm income bracket||Tax rate (%)|
|1||If the total income does not exceed Rs.400,000/=||0%|
|2||If the total income is more than Rs.400,000 but not more than Rs.800,000/=||Rs.1,000|
|3||If the total income is more than Rs.800,000 but not more than Rs.1,200,000/=||Rs.2,000|
|If the total income is more than Rs.1,200,000 but not more than Rs.2,400,000/=||5% of the amount exceeding Rs 1,200,000|
|If the total income is more than Rs.2,400,000 but not more than Rs.4,800,000/=||Rs 60,000 plus 10% of the amount exceeding Rs 2,400,000|
|4||If the total income is more than Rs.4,800,000/=||Rs 300,000 plus 15% of the amount exceeding Rs 4,800,000|
Authorization to collect tax
Farm income tax is assessed and collected by the district tax collector. Who is appointed under the Punjab Land Revenue Act 1967. In case a person holds land in more than one patwar circle, the owner must file a declaration regarding the location of his land in Punjab.
Allowances and deductions allowed against farm income:
(a) any labor expense for –
(i) till the land;
(ii) sowing the seed;
(v) make the product fit for sale;
(vi) any other agricultural operation;
(b) any expense incurred for the purchase of–
(ii) fertilizers and pesticides;
(c) any expense incurred for –
(i) rental of agricultural animals, tractors, machinery and implements used to earn agricultural income;
(ii) repair and maintenance of watercourses;
(d) any expense incurred for –
(i) the harvesting of agricultural products;
(ii) marketing of agricultural products;
(e) any amount paid in respect of –
(ii) local taxes and other taxes;
(iii) water fee (Abiana);
(iv) electricity bills for tubewells and lifting pumps used for agriculture;
(v) fuel charges for uses of tube wells and sewer pumps for agriculture;
(vi) rent from land used for agriculture;
(vii) obtaining agricultural credit;
(viii) increase in agricultural loans;
(f) in respect of the depreciation of such buildings, machinery and plant being the property of the assessee used for the purpose of earning farm income, an allowance at the rate of 15 per cent of the depreciated value; and
(g) any other expenditure not in the nature of capital expenditure or personal expenditure of the assessee incurred or expended wholly and exclusively for agricultural purposes.
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