The rationale for taxing agricultural income

The issue of taxing farm income seems to arise regularly, particularly before the annual budget is presented.

Agricultural Income and Taxation

• In India, the income from agriculture is not taxed.
• As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act.
• The agriculture and allied sector have contributed only to 18 per cent of GDP, where about 45 per cent of the population are employed. 

Need to tax Agricultural Income

• There are concerns that wealthy individuals and corporations evade tax by reporting their income as tax-exempt agricultural income.
• As the income from agriculture is not taxed, irrespective of the level of income, unaccounted money is shown as agricultural income by vested interests. 
• Cases of nurseries, seed companies, and contract farming companies claim an exemption for income earned from such activities. 

Government-appointed committees that recommended taxing agricultural income

• Report of the Taxation Enquiry Commission (1953–54)
• Raj Committee on Taxation of Agricultural Wealth and Income (1972)
• Fourth Five-Year Plan (1969–74)
• Report of Fifth Finance Commission (1969)
• Tax Reforms Committee (1991)
• Kelkar Task Force on Direct Taxes (2002)
• White Paper on Black Money (2012) 
• Tax Administration Reform Commission (2014)