Taxable income and tax of a senior citizen with agricultural income: partial integration (as set, 1961 Act, AY 2019-20)

Readings

1. Residence. The question gives no residential status; Ms. Kalyani Rao is taken as resident, the usual case, and the result for a non-resident is given at the end.
2. Age. She is 60 in the previous year 2018-19, so as a resident she is taxed at the rates for an individual aged 60 or more but below 80.
3. Agricultural income. Income is agricultural income only if it comes from land situated in India (section 2(1A)(a) and (b)); the question calls her farm receipts agricultural income, so the land is in India. Her net agricultural income is ₹9,60,000 − ₹1,80,000 = ₹7,80,000.

Computation of taxable income

• The standard deduction of section 16(ia) was inserted with effect from 1 April 2019, so it applies from this assessment year; the held text reads ₹50,000, but its footnote shows that this figure replaced forty thousand only from 1 April 2020. For assessment year 2019-20 it is ₹40,000.
• Both investments are made in the previous year, so they count; the PPF account is taken to stand in her own name, as section 80C(2)(v) requires an account of a person it allows; together they exceed the ceiling of ₹1,50,000, and the extra ₹10,000 is lost.
• The net agricultural income of ₹7,80,000 is not part of total income (section 10(1)); it is used only to fix the rate of tax, as below.

Agricultural income and partial integration

The method of partial integration is laid down in the Finance Act of the year, not in the Income-tax Act: for assessment year 2019-20, the Finance (No. 2) Act, 2019, section 2(2). It applies because she is an individual, her net agricultural income (₹7,80,000) is more than ₹5,000, and her other income (₹5,60,000) is more than the basic exemption limit of ₹3,00,000 for a resident aged 60 to 79. Slabs for her (Finance (No. 2) Act, 2019, First Schedule, Part I, Paragraph A, item (II)): nil up to ₹3,00,000; 5% on ₹3,00,001 to ₹5,00,000; 20% on ₹5,00,001 to ₹10,00,000; 30% above ₹10,00,000.

Tax liability

(Health and education cess: Finance (No. 2) Act, 2019, section 2(11).)

No rebate under section 87A: for this year it is allowed only where total income does not exceed ₹3,50,000 (the footnotes to section 87A show this limit was replaced by a higher one only from 1 April 2020). No surcharge arises at this income. ₹81,120 is already a multiple of ten (section 288B).

Without the agricultural income her tax would have been only ₹22,000 + cess (₹10,000 + 20% of ₹60,000): the farm income, though exempt, pushes her other income into the higher slabs.

If she is non-resident

The higher exemption limit for those aged 60 or more is given only to residents, so a non-resident would have a limit of ₹2,50,000 and the slabs nil, 5% to ₹5,00,000, 20% to ₹10,00,000, 30% above. Step 1, tax on ₹13,40,000, would be ₹2,14,500; step 2, tax on ₹10,30,000, ₹1,21,500; tax ₹93,000 and tax liability ₹96,720 with cess (Finance (No. 2) Act, 2019, First Schedule, Part I, Paragraph A, item (I)).