03 August 2025
Sure! Let's break this down very simply.
🌾 Why is agricultural income considered in tax calculation even though it’s tax-free? Agricultural income is exempt from tax under section 10(1) of the Income Tax Act. BUT — it is used to calculate the tax rate on your non-agricultural income, only in certain cases.
✅ When does this happen? This applies only if:
Your agricultural income is more than ₹5,000, AND
Your non-agricultural income is more than the basic exemption limit (₹2.5 lakh for most individuals under 60).
🧮 How it works: Step-by-step Let’s say:
Agricultural income = ₹2,50,000 (exempt)
Non-agricultural income = ₹6,00,000 (taxable)
You will not pay tax on ₹2.5 lakh agri income. But to find the tax rate on your ₹6 lakh, the department does this:
Step 1: Add agri income + non-agri income 👉 ₹2.5 lakh + ₹6 lakh = ₹8.5 lakh Then calculate tax on ₹8.5 lakh.
Step 2: Add agri income + exemption limit 👉 ₹2.5 lakh + ₹2.5 lakh = ₹5 lakh Then calculate tax on ₹5 lakh.
Step 3: Now subtract Step 2 tax from Step 1 tax. That final amount is the tax you actually pay.
✅ This method is called "Partial Integration".
🎯 Why does the government do this? To prevent people from showing fake agricultural income to reduce their tax rate on other income.
It ensures that:
Agricultural income stays exempt
But people with high total income still pay a fair rate on their taxable income
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