Agriculture income is exempt under section 10(1) of the Indian Income Tax Act but While computing tax on non-agricultural income agricultural income is also taken into consideration and when we compute tax taking agriculture income into consideration we pay tax on agriculture income also.
Agricultural Income – Tax treatment / Taxability– Tax on Agricultural Income In India is computed as follows:-
Step 1: Add non-agricultural income with net agricultural income.
Step 2: Compute Tax on Step 1 (not including Cess)
Step 3: Add net agricultural income and the maximum exemption limit available to the assessee.
Step 4: Compute tax on Step 3. (not including Cess)
Step 5: Compute Net Tax Payable ( Step 2 – Step 4)
Step 6: The sum so arrived at shall be increased by education cess @4% Health and Education cess.
This can be illustrated as follows:-
An assesse has his taxable income of Rs. 480000 and agriculture income of Rs. 50000.
Tax on his income will be computed as follows:-
Ø Total income = Rs 530000
Ø Tax =(250000*5%) + (30000*20%)
Tax = 12500+6000= Rs 18500
Ø Basic exemption limit+ agriculture income =250000+50000 =3,00,000
Ø Tax thereon = Rs 50000*5%= Rs 2500
Ø Net tax to be paid = 18500-2500= Rs.16000
Now if we compute tax on only on Rs 480000 it would be Rs. 11500
Therefore the increased tax liability of Rs 4500 (16000-11500) is nothing but tax on agriculture income.
Therefore it can be said that agriculture income is not really exempt. The tax is levied in indirect way and this concept is known as partial integration of taxes.
It is applicable to individuals, HUF, unregistered firms, AOP, BOI and artificial persons. Two conditions which need to satisfy for partial integration are:
i. The net agricultural income should exceed Rs. 5,000 p.a., and
ii. Non-agricultural income should exceed the maximum amount not chargeable to tax.
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(Republished With Amendments)