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
- Calculate tax on (agricultural income + non-agricultural income)
- Calculate tax on (agricultural income + exemption limit)
- 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.
- Tax on ₹5,00,000 (₹4,00,000 + ₹1,00,000) = ₹12,500
- Tax on ₹3,50,000 (₹1,00,000 + ₹2,50,000 basic exemption) = ₹0
- 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.