Why no Income Tax on Agricultural Income?

The Constitution of India is the supreme law of India. It contains 395 articles (similar to Sections) and 12 Schedules. The distribution of powers between the Union and the States is defined in several Articles and Schedules. One such Schedule, namely, the 7th Schedule, which contains 3 lists; allocates the powers and functions between Union (Centre) and States. List 1 is Union List, List 2 State List, and List 3 is the Concurrent List.

The State List contains the powers to tax agricultural income. Thus, Union Government is not empowered to tax Agricultural Income.

If so, why can’t the State Government tax Agricultural Income?

Some of you may be surprised to know about The Karnataka Agricultural Income Tax Act, 1957. Under this Act, the Karnataka Government was collecting taxes till 2004 in certain agri products, till finally, the Act was repealed in 2016. So, as of date, there is no Act to tax Agri Income.

Why was it abolished?

The compelling argument given for this move was that coffee hit a lower bottom price in 2004. It was alleged that Agriculture is a game field for converting black money by transactional deal makers. As a result, perhaps, intentionally agri is kept out of the tax net. But now that we are in a digital world, looks like the game is over. Now, make a rule that agri products over Rs.2 Lakh can’t be sold against cash. The buyer should transfer money digitally, after deducting 0.1% TDS. The entire system gets exposed to the real world. Good for the economy.    

Is it not fair to tax Agri income?

Do you mean the salaried people or business‘ get money for a song? Are they not struggling to earn their livelihood? (Question # 1) Please count at least one reason how an employee getting over Rs.2,50,000 per year (who has to pay Income tax) is in an advantageous position than an Areca nut grower earning Rs.25,00,000 per year?

Type of agriculture produce

For tax purposes, a farmer growing paddy, wheat, jawar, ragi, all staple food is equal to rich farmers growing commercial crops like cashew nuts, areca nuts, rubber, etc.  (Question # 2) Can you count one reason how both are equal? 

Income Tax Limit

If the basic exemption limit for salaried employees is Rs.2,50,000, I understand that the agriculturists may need a higher exemption limit, say, Rs.25,00,000. (Question # 3) Can you count one reason why rich agriculturists earning over Rs.25,00,000 can’t be taxed under Income Tax?

Capital Gain on sale of property

If an Individual sells a 600 sqft house for 50 Lakhs, he has to pay Capital Gain tax, but a farmer who sells 100 acres of coffee plantation for Rs.30 Crores is exempt from Capital Gain taxes. (Question # 4) Please count one reason how this individual is better off when compared to the planter? I am sure, if the Government approaches the planter, he will be more than willing to pay the taxes. The only missing link is – asking! The government should ask by amending the applicable laws!

Is this not fair? The industry is not an easy way to earn a living

According to me, taxing rich agriculturists is a fair deal. I am sure, they will also agree and be happy to pay. The discrimination between urban and rural earners can be removed permanently.

Let me tell you this. I am a village boy! I have seen the best of both worlds – city and village life. If you ask me, both have their own pain and pleasure.

I do agree that agriculture is not easy. It has problems like scanty rainfall, plentiful rain, plant diseases, natural calamities, monkeys to pigs eating the crops, etc. At the same time, industry is also not a bed of roses. It is also prone to problems like accidents, fire, theft, price fluctuations, non-payment, so on and so forth.

In fact, urbanites suffer from air, noise, water pollution and traffic! An average urbanite works for 12 hours (including commuting time), 6 days a week, or 300 days a year. This way, the rural folks enjoy better living conditions.

I mean, if an average urban earner has to pay Income Tax on income over Rs.2,50,000 per year, there is no reason why a rural Richie can’t be asked to pay Income Tax.

How much taxes can be levied?

If the Government is still sympathetic towards all types of farmers, charge them less. Instead of they paying 43% taxes like salaried employees, you tax them a flat rate of 8% or 5%. Understandable. At least, we will get to know the number of wealthy farmers in the country.

Do you want to spare the farmers growing staple foods like paddy from the brunt of taxes? – no problem. Exempt them. (Question # 5) Can you count one reason how rubber/areca is considered same as food crops like Rice or Wheat? Is it not a fair deal to consider them as growers of raw materials to the industry? They are the raw materials for the paint or tyre manufacturing industry! In fact, they should be considered as industry and eligible for Industry benefits.

What should be done?

The Central Government should bring tax on Agriculture by amending the Constitution.

Why should it be done?

There is an urgent need for this reform. A meager 2% of the population (including corporates) is paying over Rs.13 Lakh Crores in the form of Income taxes. They are paying an exorbitant rate of taxes and a day will come when they will be tired of carrying the burden of increasing taxes. To an extent, they can pull through, after a certain point, they will break.

The time is ripe for other stakeholders (who are enjoying exemption till now) to come forward and share the tax burden! Better late than never!

Hello Government – Please take a leaf out of tax structures across the globe.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant at Bangalore, India. He has 26 years of experience in the areas of NRI matters, Income Tax, Setting up Business. He is also an Insolvency Professional and Registered Valuer (F&SA)He can be contacted at [email protected]

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MANJIT SINGH
MANJIT SINGH
1 month ago

VERY GOOD WRITEEN. YOUR VOICE SHOULD REACH TO GENERAL PUBLIC AS WELL AS TO GOVERNMENT

K.Nanjundeswara
K.Nanjundeswara
1 month ago

Good morning. Very interestingly analysed . Suggested and inked to the best of common mans understanding. Am sure it seems that the present regime is trying to segregate Agri along with trade by non agriculturist / agents and bring one sector of trading activity under taxing. However your article is well explained and would like such more. Please keep it up. Regards

RN Murthy
RN Murthy
1 month ago

Well connected

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