Agricultural development allowance

Are you looking to understand about Agricultural development allowance ? 

This detailed article will tell you all about Agricultural development allowance.

Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.

The Indian government has always demonstrated its unwavering commitment towards promoting and fostering the development of the agricultural sector, which is widely regarded as the backbone of the economy. To further support this initiative, the Income Tax Act, 1961, provides tax incentives to farmers, individuals, and companies engaged in agricultural development activities, including the Agricultural Development Allowance (ADA) under Section 35C of the Act.

The ADA is a tax deduction granted to individuals involved in agricultural businesses such as horticulture, animal husbandry, and pisciculture. It allows a certain percentage of profits derived from eligible agricultural activities to be deducted, ultimately resulting in a reduction in tax liability.

To qualify for the ADA, one must fulfill specific prerequisites, including active engagement in the agricultural business, incurring expenses towards developing agricultural infrastructure and facilities, generating profits from the agricultural activity during the previous year, and maintaining comprehensive books of account to claim the allowance.

The ADA’s percentage is subject to review and approval by the central government and can fluctuate annually. Presently, it stands at 20% of profits derived from eligible agricultural activities.

For instance, if an individual involved in horticulture spent Rs. 10 lakhs in the previous year to construct a greenhouse and purchase irrigation equipment, and earned Rs. 50 lakhs in profits from horticulture business, the ADA can be calculated by applying 20% of Rs. 50 lakhs, amounting to Rs. 10 lakhs. Consequently, the individual can claim a deduction of Rs. 10 lakhs from the taxable income, resulting in a reduction in tax liability.

The Agricultural Development Allowance is a crucial tax incentive that encourages investments in agricultural infrastructure and facilities. It helps to spur growth and development in the agricultural sector. As such, eligible taxpayers should take advantage of this provision to reduce their tax liability. However, it is imperative to maintain accurate records and comply with the Income Tax Act’s rules and regulations to claim the allowance.