Taxing Agricultural Income

Taxing Agricultural Income

This article deals with ‘Taxing Agricultural Income.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

Taxing Agricultural Income

Niti Aayog, in its 3-year plan, suggested that agriculture income should be brought under the purview of personal Income Tax because non-agricultural entities sometimes use blanket relief to evade taxes.


Present Status

  • Under the Constitution, States can demand Income Tax on Agricultural Income.
  • Six states currently have agricultural tax legislation on the books—Tamil Nadu, Kerala, Assam, Bihar, Odisha and West Bengal— although implementation varies substantially & being levied mostly upon income from plantations. 


Debate – Should it be Taxed or Not?

Yes, it should be taxed

  • This provision is used as a loophole to evade taxes (According to Tax Administration Reform Commission (TARC) (2014))
  • Most Farmers in India are either Marginal or Small farmers (87%) and will remain outside the ambit of taxation.  
  • Agriculture Income Tax is state tax. It will improve the financial position of  States which are always in a financial crunch.  
  • Various Committees of past have suggested to agricultural tax income—Eg: Committee on agriculture taxation headed by K.N. Raj (1972). Dr B.R. Ambedkar also favoured taxing agricultural income.
  • To increase Income Tax Base: In India, only 4% of voters pay tax. Since 42% of the population is involved in Agriculture, the only way to increase it is to bring Agriculture Income under Income Tax.

No, it shouldn’t be taxed

  • The agriculture sector is already in a bad state and needs impetus.   
  • Administrative problems: Unlike Income from jobs, the Agriculture sector doesn’t guarantee fixed Income and is vulnerable to price fluctuations.   
  • Taxing of agriculture income is a state prerogative. Hence states should decide on this. 
  •  Income tax on agriculture can make this sector more unattractive to the young generation.

Conclusion: As suggested by MS Swaminathan,  the best and most practical way is to stop the subsidies given to Big Farmers instead of imposing taxes on agriculture income. In future, when the Agriculture sector achieves sufficient development taxing, it can be thought.