Taxation of Agriculture Income in India: An Overview

Abstract

Agricultural income, which comes under the jurisdiction of State governments, has largely remained exempt from the purview of income tax law. While various Committees on tax reforms have proposed partial taxation of agricultural income, the States, on their part, have highlighted serious problems in the assessment of agricultural incomes such as widely dispersed potential assessees, fluctuations in production due to uncertain weather conditions, and lack of accounting practices in the agricultural sector. The near absence of direct taxation of the agricultural sector is partly due to the preponderance of big landlords and other vested interests in State legislatures. Moreover, the exclusion of agricultural incomes from the income tax base provides opportunities for tax evasion by camouflaging taxable income and black money as gains from agriculture. Therefore, there is a need to relook the proposal for taxation of agricultural income from various angles such as economic logic, administrative feasibility, and political expediency. If a case for taxation of agricultural income can be worked out, it could lead to a more judicious use of taxation powers allotted to the States.