Is Agricultural Income Going To Be Taxed?

30 Apr, 2017 | 0 comments

Agricultural Income
Amost important and a crucial question now-a-days revolves around the economic and political centers of India that whether agricultural income would be brought under the purview of Indian Income Tax? As In a post independent scenario, the political leadership in India always refrained itself from taxing agriculture

because it was seen as the symbol of colonial oppression and extortion, the agricultural sector in India is enjoying a tax-free regime since the independence of India. Whether the Narendra Modi Government has the courage to bring such a tax reform in India? Let’s find the answer here.

Definition of Agricultural Income

Agricultural income means income earned from agricultural operations including processing of agricultural produces to make it fit for marketing

and also includes rent and revenue received from land which is used for agricultural purposes.

Agricultural tax at present

As per Section 10(1) of the Income Tax Act, agricultural income is exempted for the purpose of income tax calculation. It is also important to learn that there is

no threshold limit for such exemption means even if you earn 1 crore in a year from agricultural operations you will not be taxed.

What is the proposal?

The NITI Aayog, appointed by Prime Minister Narendra Modi, is the think tank believed to betting for such a major reform. The Aayog has prepared an action plan on this and suggested measures to handle the issue. It has proposed that agricultural income

should be treated same as any other personal income. The same threshold limit would apply as in the case of any other income, but the income assessed from agriculture could be an average of previous three year’s agricultural income as it is subject to weather fluctuations.

Why the reform required?

It feels that the exemption of agricultural income from tax is harmful to the economy rather than beneficial. How? Initially, the idea behind such exemption was the economic development of the farmers in India and a majority of the population is dependent on farming. But the matter of

the fact is, many people are using such exemption route for tax evasion purposes. That’s why, the NITI Aayog, has in its draft three-year action plan, suggested govt. to tackle tax evasion, expand the tax base and simplify the tax system through reforms.

In his Budget Speech, 2017, Finance Minister Arun Jaitley, has announced a steep reduction in base tax rates i.e. from 10% to 5% for income up to 5 lacs, though the basic exemption limit is still Rs. 2.50 lacs. This change has been made to widen the coverage of Income tax so that more people come and voluntarily declare their income for tax purpose. There is also an economic demand all around to reduce the

corporate tax so that new investments can be encouraged both from within and outside the country. And Govt. has already kick started the exercise to do away with corporate tax exemption to attract more investors. So there definitely going to impact the revenue collection of the public exchequer. So, the agricultural tax can be a good source to mitigate such revenue deficit which is ultimately used for nation building.

Another argument is popping up within the country, why there shouldn’t be parity so far as income tax levy is concerned. A small pan shop owner or a grocery shopkeeper is liable to pay income tax as soon as he exceeds the basic exemption limit, then why such differentiation in the case of agricultural income. Since the social and economic background on both the cases is same will it not be unjust to favour a particular sector?

Interesting fact

In the period between 2007-08 and 2015-16, an estimated 2746 entities and individuals each declared agricultural income of at least Rs. 1 crore.

Reality check

It is to be noted that agricultural income can be taxed only after amendment in the Income Tax Act, and it’s beyond any executive decision. In the current political scenario, taxing agricultural income would prove to be a brave step towards tax reforms, and Narendra Modi Government has to taste salt water for that. In a recent development Finance Minister Arun Jaitley, though denied such reforms in the nearest future, the Govt. of India is seriously considering

the proposal. This tax reform, on the one hand, can be treated as a measure of economic growth and on the other hand, this movement should be seen as a fair distribution of tax burden on all the sectors of the economy. Hence, with the changing economic environment and perpetual globalisation and competition, India has to come out with flying colours so far as economic growths are concerned.

Amost important and a crucial question now-a-days revolves around the economic and political centers of India that whether agricultural income would be brought under the purview of Indian Income Tax? As In a post independent scenario, the political leadership in India always refrained itself from taxing agriculture because it was seen as the symbol of colonial oppression and extortion, the agricultural sector in India is enjoying a tax-free regime since the independence of India. Whether the Narendra Modi Government has the courage to bring such a tax reform in India? Let’s find the answer here.

Definition of Agricultural Income

Agricultural income means income earned from agricultural operations including processing of agricultural produces to make it fit for marketing and also includes rent and revenue received from land which is used for agricultural purposes.

Agricultural tax at present

As per Section 10(1) of the Income Tax Act, agricultural income is exempted for the purpose of income tax calculation. It is also important to learn that there is no threshold limit for such exemption means even if you earn 1 crore in a year from agricultural operations you will not be taxed.

What is the proposal?

The NITI Aayog, appointed by Prime Minister Narendra Modi, is the think tank believed to betting for such a major reform. The Aayog has prepared an action plan on this and suggested measures to handle the issue. It has proposed that agricultural income should be treated same as any other personal income. The same threshold limit would apply as in the case of any other income, but the income assessed from agriculture could be an average of previous three year’s agricultural income as it is subject to weather fluctuations.

Why the reform required?

It feels that the exemption of agricultural income from tax is harmful to the economy rather than beneficial. How? Initially, the idea behind such exemption was the economic development of the farmers in India and a majority of the population is dependent on farming. But the matter of the fact is, many people are using such exemption route for tax evasion purposes. That’s why, the NITI Aayog, has in its draft three-year action plan, suggested govt. to tackle tax evasion, expand the tax base and simplify the tax system through reforms.

In his Budget Speech, 2017, Finance Minister Arun Jaitley, has announced a steep reduction in base tax rates i.e. from 10% to 5% for income up to 5 lacs, though the basic exemption limit is still Rs. 2.50 lacs. This change has been made to widen the coverage of Income tax so that more people come and voluntarily declare their income for tax purpose. There is also an economic demand all around to reduce the corporate tax so that new investments can be encouraged both from within and outside the country. And Govt. has already kick started the exercise to do away with corporate tax exemption to attract more investors. So there definitely going to impact the revenue collection of the public exchequer. So, the agricultural tax can be a good source to mitigate such revenue deficit which is ultimately used for nation building.

Interesting fact

In the period between 2007-08 and 2015-16, an estimated 2746 entities and individuals each declared agricultural income of at least Rs. 1 crore.

Another argument is popping up within the country, why there shouldn’t be parity so far as income tax levy is concerned. A small pan shop owner or a grocery shopkeeper is liable to pay income tax as soon as he exceeds the basic exemption limit, then why such differentiation in the case of agricultural income. Since the social and economic background on both the cases is same will it not be unjust to favour a particular sector?

Reality check

It is to be noted that agricultural income can be taxed only after amendment in the Income Tax Act, and it’s beyond any executive decision. In the current political scenario, taxing agricultural income would prove to be a brave step towards tax reforms, and Narendra Modi Government has to taste salt water for that. In a recent development Finance Minister Arun Jaitley, though denied such reforms in the nearest future, the Govt. of India is seriously considering the proposal. This tax reform, on the one hand, can be treated as a measure of economic growth and on the other hand, this movement should be seen as a fair distribution of tax burden on all the sectors of the economy. Hence, with the changing economic environment and perpetual globalisation and competition, India has to come out with flying colours so far as economic growths are concerned.