Partial Integration of Agricultural Income

# Partial Integration of Agricultural Income with Non-Agricultural Income

Agricultural income is fully exempt, but for individuals (and similar persons), it is considered while determining the rate of tax on non-agricultural income. This is called Partial Integration.

## Applicability

Applies to: Individual, HUF, AOP/BOI, Artificial Juridical Person

Not applicable to: Firm, LLP, Company, Co-operative Society, Local Authority.

## Conditions (BOTH must be satisfied)

1. Net Agricultural Income > ₹5,000, AND

2. Non-Agricultural Income > Basic Exemption Limit

## Definitions

• Net Agricultural Income = Agricultural Income − Expenses incurred for earning such income
• Non-Agricultural Income = Taxable Income (the regular total income)
• Agricultural Income includes:
• Income from sale of agricultural produce
• Rent from agricultural land / farm building used for agricultural purposes
• Income from saplings & seedlings grown in a nursery

## Computation Steps

Step 1: Tax on (Net Agricultural Income + Non-Agricultural Income) — without rebate, surcharge & cess.

Step 2: Tax on (Net Agricultural Income + Basic Exemption Limit) — without rebate, surcharge & cess.

Step 3: Tax Amount = Step 1 − Step 2.

Step 4: Compute Total Tax Liability:

## Logic Behind the Mechanism

The scheme effectively pushes non-agricultural income into higher slabs (because agricultural income is added on top of the basic exemption limit), thereby preventing assessees with large agricultural income from getting full benefit of lower slabs on non-agricultural income.