27th January 2023 (6 Topics)
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The rationale for taxing agricultural income
Context
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)
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Farmers in many states pay some income tax. States such as Assam, Tamil Nadu, Kerala, Maharashtra, Odisha, Uttar Pradesh, and West Bengal have an agricultural income tax, although it is payable only for certain crops and activities. |
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