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:
- Artificial juridical person.
It is not done in the case of:
- co-operative society;
- local authority.
The partial integration is done to compute the tax on non-agricultural income only when the following two conditions are satisfied:
- 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
- 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 is 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 + education cess and SHEC @ 3%.
Gross Total Income of Mr. Dust aged 50 years as computed under Income-tax Act, for the assessment year 2018-19 is Rs. 3,00,000. He deposits Rs. 20,000 in a PPF account.
Compute the tax payable by Mr. Dust assuming that he has agricultural income of
- Rs. 5,000; and
- Rs. 3,50,000.
In Case of a & b
(a) and (b) Since the agricultural income is either Nil or does not exceed Rs. 5,000, there will be no partial integration and the Income-tax will be calculated on Rs. 2,80,000 (Rs. 3,00,000 – 20,000 deduction u/s 80C) as usual.
Tax on Rs. 2,80,000 will be Rs. 1,500 – Rs. 1,500 (Rebate u/s 87A) = NIL.
In Case of (c) : Rs. 3,50,000 (Agricultural Income)
|Aggregate of agricultural and non-agricultural income (Rs. 3,50,000 +Rs. 2,80,000)|
|Tax on Rs. 6,30,000||38,500|
|Add Rs. 2,50,000 (Maximum exemption limit) to agricultural income of Rs. 3,50,000|
|Tax on Rs. 6,00,000||32,500|
|Deduct Tax under Step 2 from Tax under Step 1 (Rs. 38,500 – Rs. 32,500)||6,000|
|Therefore, tax on non-agricultural income||6000|
|Less: Rebate u/s 87A||2,500|
|Add: Education cess & SHEC – @ 3%||105|
|Therefore, total tax payable||3,610|