Agricultural Income is exempt from tax under section 10(1) subject to conditions mentioned in the definition clause of section 2(1A) of the Income Tax Act, 1961. However, the Income-tax Act has laid down a method to indirectly tax such income. This method or concept may be called as partial integration of agricultural income with non-agricultural income. The purpose behind this method is to tax non-agricultural income at higher rates of tax.
Applicability:
This method is applicable only to individuals, HUF, AOPs, BOIs and artificial juridical person, when the following conditions are satisfied:
(1) The net agricultural income is greater than ₹5,000 during the year; and
(2) Non-agricultural income (i.e., total income excluding net agricultural income) is above the basic exemption limit.
♦ More than ₹2,50,000 for individuals below 60 years of age and all other applicable person.
♦ More than ₹3,00,000 for resident senior citizens in the age brackets of 60 to 79 years of age.
♦ More than ₹5,00,000 for resident super senior citizens of the age of 80 years or more.
In layman’s terms, the non-agricultural income should be greater than the maximum amount not chargeable to tax (as per slab rates).
Therefore, companies, LLP/Firm, co-operative society, and local authorities are excluded from using this method. Their entire agricultural income is exempt form tax.
Calculation of tax as per partial integration method
Step 1: Calculate Income tax on aggregate of Non-agricultural income and net agricultural income of the assessee, as if such aggregate income were his total income.
Step 2: Calculate Income Tax on aggregate of net agricultural income and maximum exemption limit as per slab rates, as if such income were the total income of the assessee. (Maximum exemption limit is ₹2,50,000/₹3,00,000/₹5,00,000).
Step 3: The amount of Income tax determined in step 1 will be reduced by the amount of Income tax determined in step 2.
Step 4: Then find out the balance as per step 3. Now deduct rebate under section 87A, if available. Add Surcharge, if applicable and health & education cess @4%.
Step 5: The amount so calculated in step 4 is the income tax which is payable by the assessee.
Illustration
Mr. Reyansh, a resident, has provided the following particulars of his income for the Financial Year 2022-23.
| (1) | Income from salary (computed) | ₹4,50,000 |
| (2) | Income from house property (computed) | ₹3,15,000 |
| (3) | Net agricultural income | ₹1,10,000 |
Compute his tax liability assuming Mr. Reyansh does not opt for the provisions of section 115BBC and his age is 40 years.
Solution
Computation of Total income of Mr. Reyansh for Assessment Year 2023-24
| Particulars | ₹ | ₹ |
| Income from salary | 4,50,000 | |
| Income from house property | 3,15,000 | |
| Net Agricultural income
Less: Exempt under section 10(1) |
1,10,000
1,10,000 |
– |
| Gross Total Income | 7,65,000 | |
| Less: Deduction under chapter VI-A | – | |
| Total Income | 7,65,000 |
Computation of tax Liability
For the purpose of partial integration of taxes, Mr. Reyansh has satisfied both the conditions i.e.,
1. Net agricultural income exceeds ₹5,000 p.a., and
2. Non-agricultural income exceeds the basic exemption limit of ₹2,50,000.
His tax liability is computed in the following manner:
| Step 1 | ₹7,65,000 + ₹1,10,000 | ₹ 8,75,000 |
| Tax on ₹8,75,000 | ₹87,500 | |
| (i.e., 5% of ₹2,50,000 + 20% of | ₹3,75,000) | |
| Step 2 | ₹1,10,000 + ₹2,50,000 | ₹3,60,000 |
| Tax on ₹3,60,000 | ₹5,500 | |
| (i.e., 5% of ₹1,10,000) | ||
| Step 3 | ₹ 87,500 – ₹5,500 | ₹82,000 |
| Step 4 | 82,000 + ₹82.000 x 4% | |
| Step 5 | Total Tax Payable | ₹85,280 |
Author Bio
Yes, Non-agricultural income will be after deduction as given under chapter VI-A.
what, if there are chapter VI A deductions in case of partial integration of agricultural income concept. Does non-agricultural income should be taken after considering deductions ?
Yes, Non-agricultural income will be after deduction as given under chapter VI-A.