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Why agricultural Income is exempt from Income Tax?

The Constitution of India allocates the power of levy of taxes between the Central Government and the State Governments.

Article 246 of The Constitution of India, 1949 reads as under –

Subject matter of laws made by Parliament and by the Legislatures of States

(1) Notwithstanding anything in clauses ( 2 ) and ( 3 ), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List)

(2) Notwithstanding anything in clause ( 3 ), Parliament, and, subject to clause ( 1 ), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List)

(4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included (in a State) notwithstanding that such matter is a matter enumerated in the State List

As per the above Article

List I – areas on which only Parliament can make laws

List II – areas on which only the state legislature can make laws

List III – areas on which both the Parliament and the State Legislature can make laws (this list is also called as ‘concurrent list)

Article 265 of The Constitution of India, 1949 reads as under:

Taxes not to be imposed save by authority of law No tax shall be levied or collected except by authority of law” (which means the central government (read as Parliament) is not authorized to make laws on the items/areas mentioned in List II)

Agricultural Income is exempt under Income Tax Act

As per Entry 82 of List I of the Constitution mentions about Taxes on income other than agricultural income. Thus the Income tax is a matter of Central subject and accordingly, U/s 10(1) of the Income Tax Act, 1961 the agricultural income is exempt from tax.

 Agricultural Income is taxed under State Agricultural Tax

As per Entry 46 of List II of Seventh schedule, Taxes on agricultural income is taxed by the State Government. Thus the State government levy taxes on agricultural income. For example, the Government of Karnataka levy taxes on agriculture through The Karnataka Agricultural Income tax Act, 1957.

 

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CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]