Effect of Agreeculture Income

Agricultural income [Section 10(1)] –

(i) Section 10(1) provides that agricultural income is not to be included in the total income of the assessee. The reason for totally exempting agricultural income from the scope of central income tax is that under the Constitution, the Parliament has no power to levy a tax on agricultural income.

(ii) Indirect way of taxing agricultural income - However, since 1973, a method has been found out to levy tax on agricultural income in an indirect way. This concept is known as partial integration of taxes. It is applicable to individuals, HUF, unregistered firms, AOP, BOI and artificial persons.

Two conditions which need to satisfied for partial integration are:

1. The net agricultural income should exceed Rs.5,000 p.a., and

2. Non-agricultural income should exceed the maximum amount not chargeable to tax. (i.e. Rs.2,25,000 for senior citizens, Rs.1,80,000 for women assessees below 65 years of age, Rs.1,50,000 for all other individuals.) It may be noted that aggregation provisions do not apply to company, firm assessed as such (FAS), co-operative society and local authority. The object of aggregating the net agricultural income with non-agricultural income is to tax the non-agricultural income at higher rates. (Slab Rates as per AY 09-10)

Tax calculation in such cases is as follows: Step 1: Add non-agricultural income with net agricultural income. Compute tax on the aggregate amount.

Step 2: Add net agricultural income and the maximum exemption limit available to the assessee (i.e. Rs.1,50,000 / Rs.1,80,000 / Rs.2,25,000). Compute tax on the aggregate amount.

Step 3: Deduct the amount of income tax calculated in step 2 from the income tax calculated in step 1 i.e. Step 1 – Step 2. 

Step 4: Add surcharge, if applicable, to the amount obtained in step 4 above.

Step 6: The sum so arrived at shall be increased by education cess @ 2% and S.H.E Cess @ 1%.

Mr. X, a resident, has provided the following particulars of his income for the P.Y.2008-09.

i. Income from salary (computed) -Rs.1,40,000

ii. Income from house property (computed) - Rs.1,00,000

iii. Agricultural income from a land in Jaipur - Rs.80,000

iv. Expenses incurred for earning agricultural income - Rs.20,000

Compute his tax liability -

Income from salary                                                                   1,40,000

Income from house property                                                       1,00,000

Net agricultural income [Rs.80,000 – Rs.20,000 ]                            60,000

Less: Exempt u/s 10(1)                                                               (60,000)

Less: Deductions under Chapter VI-A                                                 -

For the purpose of partial integration of taxes, Mr. X has satisfied both the conditions i.e.

1. Net agricultural income exceeds Rs.5,000 p.a., and

2. Non agricultural income exceeds the basic exemption limit of Rs.1,50,000.

His tax liability is computed in the following manner:

Step 1: Rs.240,000 + Rs.60,000 = Rs.3,00,000.

Tax on Rs.3,00,000 = Rs. 15,000

Step 2: Rs.60,000 + Rs.1,50,000 = Rs. 2,10,000

Tax on Rs.2,10,000 = Rs.6,000

Step 3 : Rs.15,000 – Rs.6,000 = Rs.9,000.

Step 4 : Surcharge is not applicable since his total income does not exceed Rs.10,00,000.

Step 5 : Total tax payable = Rs.9,000 + 3% of Rs.9,000 = Rs.9,270.

 I think reply made by Deepika is sufficient.

Thank u