Partial Integration of Agricultural Income With Non-Agricultural Income for Higher Rates

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Partial Integration of agricultural income with
non-agricultural income for higher rates
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• 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.

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• ? 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 laymans 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 _at_4.

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• 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.,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

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• 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
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