Income of a company is computed under five heads

under various provisions of the Income Tax Act, 1961

 Income under the head “House Property”
 Income under the head “Profits and Gains of Business
or Profession”
 Income under the head “Capital Gains”
 Income under head “Income from other sources”
Agricultural income earned in India is considered as
exempt as per Section 10(1) of the Income Tax Act.
However, agricultural income from outside India is
rendered taxable. Companies having composite income
i.e. Both agricultural income and non- agricultural
income, tax is charged only on non-agricultural income.
Sometimes, income comprises of both agricultural as well
as non-agricultural income. Such a situation arises in case
of certain ‘Agro based industries where agricultural
produce is used as raw material and it (i.e., raw material)
is produced by the same person (i.e., industrialist) who
manufactures industrial product by using such raw
material. Such industries (i.e., persons), earn income by
selling the industrial product manufactured from self
grown agricultural raw material.
For example, Mr. X is the owner of agricultural land in India and
produces sugarcane by spending Rs. 2,00,000. Further, X set up an
industrial undertaking to manufacture sugar from sugarcane so
produced. Accordingly, he uses the whole quantity of sugarcane for
producing sugar and spends Rs, 2,50,000 as industrial expenses. He
ultimately sells the sugar so produced for Rs. 7,00,000.

In this case, the total income of Mr. X shall be calculated as follows :

Total Income = Sale proceeds of sugar — Cost of cultivation —

Industrial expenses

= Rs. (7,00,000 - 2,00,000 - 2,50,000)

= Rs. 2,50,000
 As per Rule 7, while calculating non-agricultural
income, the market value of the agricultural produce
raised by the assessee or received as rent-in-kind and
utilized as raw material, will be deducted act of the total
profits (composite income) of such assessee and not the
actual cost of cultivation. However, difference between
the market value of such produce (used as raw material)
and the cost of cultivation shall be treated as
agricultural income.
(a) Non-agricultural Income = Sale proceeds of industrial
product (e.g., Sugar) - M.V. of agricultural used as raw
material - Industrial Expenses

Note : . Cost of cultivation is not to be charged as expenses.

(b) Agricultural Income = M.V. of Agricultural produce used

as raw material - Cost of cultivation
Market value means:

(i) Average selling price in the relevant previous year, if the

produce is ordinarily sold in the market.

(ii) If the agricultural produce is not ordinarily sold in the

market, the total of followings shall he treated as ‘market
value’ :
(a) the expenses of cultivation;
(b) the land revenue or rent of the land on which the
produce is grown;
(c) a reasonable amount of profit which in the opinion of
Assessing Officer is considered proper.
Composite Income or Total Income = Sale proceeds of
Rubber (i.e., Industrial product)

- Cost of cultivation (i.e., Agricultural expenses)

- Industrial expenses

Now, Agricultural income = 65% of composite income

and Non-agricultural income = 35% of composite income

Then, 35% of total income of such rubber industries will be chargeable to

tax under the head ‘Profit and Gains of Business or Profession.’
Any income derived by a person from selling coffee (in India)
manufactured from self-grown coffee (in India) shall also be
composite income comprising of agricultural income and non -
agricultural income.

In such a case also, first of all total income/composite income shall

he calculated as follows:

Composite income or Total income = Sale proceed of

coffee (i.e., Industrial product)

- Cost of cultivation (i.e., Agricultural expenses)

- Industrial expenses
Agricultural Income = 75% of composite income

and Non-agricultural income = 25% of composite

income

Thus, 25% of total income of such coffee industries will

be chargeable to tax under the head ‘Profits and Gains
of Business or Profession’.
Agricultural income = 60% of composite income

And Non-Agricultural income = 40% of composite income

Thus, 25% or 40% (as the case may be) of total income of such
coffee industries will be chargeable to tax under the head
‘Profits and Gains of Business or Profession.’
Composite Income/ Total Income =
Sale proceeds of Tea (i.e., Industrial Product) - Cost of
cultivation (i.e., Agricultural expenses) - Industrial Expenses

Note. M.V. of tea leaves is not to be deducted as cost.

Now, Agricultural Income = 60% of Composite Income

Non-Agricultural Income = 40% of Composite Income

Then, 40% of total income of such sugar industries will be

chargeable to tax under the head ‘Profits and Gains of Business
or Profession’.
 TABLE - PARTLY AGRICULTURAL AND
PARTLY BUSINESS INCOME
Crop Rule Agricultural Income Business Income

Growing and
Manufacture of Tea
8 60% 40%

Rubber manufacturing
business
7A 65% 35%

Coffee grown and

cured by seller
7B(1) 75% 25%

Coffee grown, cured,

roasted and
grounded by the seller
in India with or without
mixing chicory or other
flavouring ingredients
7B(1A) 60% 40%
 To avoid difficulty in calculation of taxable amount and to
facilitate easy of payment of tax liability, the Income Tax
act provides provisions of rounding off of taxable income as
well final tax liability which is given under section 288A
and 288B.
 As per section 288A of the Income Tax Act, the total
income computed as per various sections of this act, shall
be rounded off to the nearest Rs 10. For the purpose of
rounding off, firstly any part of rupee consisting of paise
should be ignored. Thereafter, if the last digit in the total
figure is 5 or greater than 5, the total amount should be
increased to the next higher amount which is a multiple of
Rs. 10. This means, If total income is Rs. 12,98,464.50 then
it should be rounded off to Rs. 12,98,460.
As per Section 288B of the income tax act, the total tax
computed shall be rounded off to the nearest Rs 10. The
rounding off of tax would be done on the total tax payable or
refundable and not to various different sub-heads of taxes like
income tax, education cess, surcharge etc. Rounding off
would be done in the same manner as explained above u/s
288A i.e. firstly paise would be ignored and thereafter if the
last digit in the total figure is 5 or greater than 5, the total
amount should be increased to the next higher amount which
is a multiple of Rs. 10. So, if tax liability comes to amount of
Rs. 2,98,464.50 then it should be rounded off to Rs. 2,98,460
while a tax liability amount of Rs. 2,98,465.50 should be
rounded off to Rs. 2,98,470.
(A) In case of domestic company
A domestic company is taxable at 30%. However, tax
rate is 25% if turnover or gross receipt of the company
does not exceed Rs. 50 crore.
Plus-
Surcharge: 7% of tax where total income exceeds Rs. 1
crore
12% of tax where total income exceeds Rs. 10 crore
Education cess: 3% of tax plus surcharge
A foreign company is taxable at 40%
Plus -
Surcharge: 2% of tax where total income exceeds Rs. 1
crore
5% of tax where total income exceeds Rs. 10 crores
Education cess: 3% of tax plus surcharge
Tax at the rate of 25 % on income of certain domestic
companies:
As per new section 115BA has been inserted with effect
from assessment year 2017-18 that the domestic
companies satisfy following conditions will eligible for
tax rate of 25 per cent.
Conditions:
1. The Assessee is a domestic company.
2. The company has been set-up and registered on or
after 01.03.2016.
3. The company is not engaged in any business other than the
business of manufacture or production of any article or thing
and research in relation to (or distribution of) such article or
thing manufactured or produced by it.
4. Total income of the company is computed without claiming
additional depreciation and deduction under
sec.10AA,32AC,32AD,33AB,33ABA.35(1)(ii)/(iia)/(iii)/35(2
AA)/(2AB),
35AC, 35CCC, 35CCD and Section 80H to 80TT (not being
sec-80JJAA).
5. Total income of the company is calculated without adjusting
brought forward loss from any earlier year (if such loss
pertains to any deduction under the aforesaid
sections).Moreover, such loss will not be carried forward.
Option in the Hands of Assessee:
If the above conditions are satisfied, the company has
an option to pay tax at the rate of twenty five per
cent(+SC+EC+SHEC). This Option shall be
exercised on or before the due date for furnishing the
returns of income, which the company is required to
furnish under the Act.
Once the company has exercised the option for any
previous year, it cannot be subsequently withdrawn
for the same or any other previous year.