FBR defines agricultural income for tax exemption

FBR defines agricultural 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.

Sources in the FBR on Tuesday said that 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.

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The FBR has updated the Income Tax Ordinance, 2001 as of June 30, 2022, to provide a clear definition of agricultural income. According to the ordinance, agricultural income refers to:

01. Any rent or revenue derived by a person from land situated in Pakistan used for agricultural purposes.

02. 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.

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03. 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.

The definition provided by the FBR clarifies what constitutes agricultural income and what qualifies for exemption under the Income Tax Ordinance, 2001. By providing this explanation, the FBR aims to ensure that taxpayers are aware of the rules regarding agricultural income and that they comply with them.

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It is important to note 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 comply with them.

In conclusion, the FBR’s explanation of agricultural income provides clarity on what constitutes this type of income and how it is treated for tax purposes. This will help taxpayers engaged in agricultural activities to comply with tax regulations and avoid any penalties for non-compliance. 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.

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