Tax on Non-Agricultural Income if the Assessee earns Agricultural Income also

Tax on Non-Agricultural Income with partial Agricultural Income

As already discussed, there is no tax on agricultural income but if an assessee has non-agricultural income as well as agricultural income, such agricultural income is included in his Total Income for the purpose of computation of income-tax on non-agricultural income. This is also known as partial integration of agricultural income with non-agricultural income or indirect way of taxing agricultural income.

Such partial integration is done only in the case of:

(i) individual;

(ii) HUF;

(iii) AOP/BOI;

(iv) Artificial juridical person.

It is not done in the case of:

(i) Firm;

(ii) Company;

(iii) Co-Operative Society;

(iv) Local Authority.

The partial integration is done to compute the tax on non-agricultural income only when the following two conditions are satisfied:

(i)         Non-agricultural income of the assessee exceeds the maximum exemption limit which is Rs.2,50,000 in the case of an individual (other than individual of the age of 60 years or above) and HUF, etc.; and

(ii)        The Net Agricultural Income exceeds Rs.5,000.

Computation of Tax where there is Agricultural Income also:

The following steps should be followed to calculate the tax:

Step 1:            Add agricultural income and non-agricultural income and calculate tax on the aggregate as if such aggregate income is the Total income.

Step 2:             Add agricultural income to the maximum exemption limit available in the case of the assessee and compute tax on such amount as if it were the Total Income.

Step 3:             Deduct the amount of income-tax as computed under Step 2 from the tax computed under Step 1.

The amount so arrived at shall be total Income-tax payable by the assessee.

Step 4:             Claim rebate under section 87A if applicable.

Step 5:             Add surcharge if applicable + health and education cess @ 4%.

EXAMPLE :

Gross Total Income of S aged 50 years as computed under Income-tax Act, for the assessment year 2022-23 is Rs.5,20,000. He deposits Rs.20,000 in a PPF account.

(i)         Compute the tax payable by S assuming that he has agricultural income of(a) Nil; (b) Rs.5,000; and (c) Rs.3,50,000.

(ii)        What will be the tax payable by S in the above case, if he opts to be taxed under section 115BAC.

Solution (i):

(a) and (b) Since the agricultural income is either Nil or does not exceed Rs.5,0000. there will be no partial integration and the Income-tax will be calculated on Rs.5,00,000 (Rs.5,20,000 — Rs.20,000 deduction under section 80C) as usual. Tax on Rs.5,00,000 will be Rs.12,500 — Rs.12,500 (Rebate under section 87A) = Nil.

Solution (ii):

In this case also, there will be no partial integration and the Income-tax will be calculated on Rs.5,20,000 as deduction under section 80C (Chapter VIA) shall not be allowed. Tax on Rs.5,20,000 will be Rs.15,500. Further, rebate under section 87A shall not be allowed as his total income exceeds Rs.5,00,000.