The Interim Budget 2024 has brought forth a vital clarification regarding the taxation of agricultural income under the new tax regime. The clarification specifically addresses the computation of tax slabs for individual and Hindu Undivided Family (HUF) taxpayers who earn both regular and agricultural income.
The prevailing provisions of the Income Tax Act have traditionally exempted agricultural income from taxation. The taxation for individual and HUF taxpayers is typically based on applicable slab rates.
When an individual or HUF taxpayer earns both regular and agricultural income, the exempt agricultural income is factored into the determination of the applicable income slab. For instance, if an individual has business income of Rs 8 lakh and agricultural income of ₹10 lakh, the tax slab is set at 30%, but the tax is calculated only on the business income of ₹8 lakh.
The Finance Bill outlines that "the income-tax chargeable shall be computed" by aggregating total income and net agricultural income, determining income tax at specified rates as if such aggregate income were the total income. This clarification ensures a consistent approach in treating agricultural income for taxation purposes, aligning the existing tax regulations with the provisions of the optional tax regime. This move is poised to bring about coherence and transparency in the taxation system, providing clarity to taxpayers who possess both regular and agricultural income.