Partial Integration of Agricultural and Non-Agricultural Income

Partial Integration of Agricultural and Non-Agricultural Income

In India, agricultural income is exempt from tax under Section 10(1) of the Income Tax Act. However, when a person has both agricultural and non-agricultural income, the concept of partial integration is applied to compute tax on non-agricultural income.

Why Partial Integration is Done

This is done to ensure fair taxation, especially when a person earns a large amount of agricultural income along with non-agricultural income. Although agricultural income is exempt, it is used to determine the applicable tax slab rate on taxable income.

When is Partial Integration Applicable?

• If the taxpayer has agricultural income exceeding ₹5,000
• And non-agricultural income exceeds:
• ₹2,50,000 for individuals below 60 years
• ₹3,00,000 for senior citizens (60-80 years)
• ₹5,00,000 for super senior citizens (above 80 years)

Steps to Calculate Tax Using Partial Integration

1. Calculate tax on (agricultural income + non-agricultural income)
2. Calculate tax on (agricultural income + exemption limit)
3. Deduct the second result from the first. The balance is the tax payable.

Example:

Let’s say Mr. A has ₹1,00,000 agricultural income and ₹4,00,000 non-agricultural income.

1. Tax on ₹5,00,000 (₹4,00,000 + ₹1,00,000) = ₹12,500
2. Tax on ₹3,50,000 (₹1,00,000 + ₹2,50,000 basic exemption) = ₹0
3. Tax payable = ₹12,500 – ₹0 = ₹12,500

Conclusion

Partial integration ensures that people who have both types of income are taxed fairly. It helps prevent misuse of the agricultural income exemption while still respecting the tax-free nature of true agricultural income.