Voluntary tax on Agricultural Income.

A 2019 Comptroller and Auditor General report has brought out glaring irregularities in the exemptions given to agricultural income for income tax purposes. Exempting large income on agriculture from taxation not only makes the agricultural sector a conduit for money laundering and concealment of black money but also holds back the much-needed modernisation and reform of the sector. Although everyone agrees on the desirability of taxing agricultural income, successive governments have shied away from it for electoral reasons.  The CBDT also admitted that giving exemption to agricultural income for income-tax purposes without verification of claims allows an avenue for bringing black money into the financial system as agricultural income.

The idea of taxing agricultural income is reasonable looking at the growth and development of the nation. However, the issue is so politically motivated as the implementation of this provision would affect the lives of numerous people which has a direct relation to casting votes at the time of the election. To avail the benefit of this Act, it requires the farmers to be classified as socially and economically deprived of resources. 

Here, the major problem will be identifying the individuals, provided that many people hold small pieces of land or are landless labourers and identifying what is to be taxed, it is difficult to identify the value of the output or the net income earned by the farmer. Individuals use their black money to convert into white money by reading the words of the tax provision rather than going on the spirit of the law. 

Also, at the time of plantation of rubber and wheat in the same land in the ratio of 3:2, the assessee takes advantage of window dressing since rubber is 60 percent exempted in the tax provision and wheat is fully exempted under the section. Further, terrorism is also motivated by the exemption of agricultural income as the blood money is converted into white money in the books of account to depict the wrong picture to the government. However, in case if this is implemented the tax would affect the consumer, as they have to pay a higher price for the product.

 Thus, taxing agricultural income has both its advantage & disadvantage. Following are the recommendations before policymakers in respect of taxation of agricultural income.

·         No exemption for agricultural income if an individual gross income exceeds a certain threshold like Rs. 1 Mn or 2 Mn.  This will help the government to tax the rich farmers.

·         Individuals voluntary can offer agricultural income for tax.