Question

Read the given statements and choose the correct option. Statement 1: Agricultural Income is Exempt from Tax under Section 10(1) of the Income Tax Act, 1961.
Statement 2: Tax on Non-Agricultural Income in case of Non-Agricultural Income exceeding the Basic Exemption limit and Agricultural Income exceeding ₹5000 is determined by the Scheme of Partial Integration of Non-Agricultural Income with Agricultural Income.

• A. Only statement 2 is true
• B. Both the Statements are incorrect
• C. Both the Statements are correct
• D. Only Statement 1 is true

Hint:

Agricultural income is exempt under Section 10(1), but partial integration applies when both agricultural and non-agricultural income are earned by the same taxpayer.

Answer 1

The Correct Option is B

Step 1: Understanding Section 10(1) of the Income Tax Act, 1961.
Section 10(1) clearly states that agricultural income is exempt from income tax. This exemption ensures that income earned directly from agricultural operations remains outside the purview of central taxation.
Step 2: Understanding Partial Integration.
When a taxpayer has both agricultural and non-agricultural income, and the agricultural income exceeds ₹5000 while the non-agricultural income crosses the basic exemption limit, the tax liability is computed using the Scheme of Partial Integration. This helps determine the effective tax rate applicable to non-agricultural income.
Step 3: Conclusion.
Both statements are correct as per the provisions of the Income Tax Act, 1961.