Should agricultural income be taxed?

A debate about taxing the agricultural income has picked up of late. It is said that at least a few rich farmers need to be brought into the tax net. As of now Central Government can’t impose or levy tax on agricultural income. The exemption clause is mentioned under Section 10 (1) of the Income Tax Act of India.

Taxation of agriculture has many supporters including Dr. B.R Ambedkar. The recent Economic Survey also gave positive signals regarding the same. The topic has been a moot one since 1970s. A committee on Agricultural income headed by K.N Raj also recommended taxation on the income of rich farmers.

In this article, we will be understanding both the sides of this debate.

Image result for taxing agricultural income

Why should agricultural income be taxed?

  • A large number of farmers earn more than those non-agricultural workers who pay taxes.
  • It can reduce disparities among farmers across the country. For example, the farmers in the region where Green Revolution happened are much affluent while many farmers in Maharashtra, Rajasthan, Bihar, MP among others are living in pestilence. Channelizing the taxed income to their welfare can help reduce the disparities among the farming community across the country.
  • Since, agriculture has modernized and is continuing to do so, the productivity has been increasing, thus, creating avenues for taxing the agricultural income.
  • Countries like Japan, China and Soviet Union opted for inter-sectoral resource mobilisation. They mobilised resources from agriculture to the industrial sectors.
  • It can bring down land prices as the land dealing will be done through appropriate legal procedures.
  • It can promote economic stability.

What are the issues with taxation of agricultural income?

  • Difficult to trace the income of the farmers.
  • Seasonal fluctuations leads to fluctuations in the income of the farmers.
  • Imposition of taxes could lead to higher credit flows  from banks to the rich farmers as they have higher income to show and thus, banks would prefer to lend them as the return is much more assured as compared to that of the poor farmers.
  • Problem of depreciation and capital replacement is more complicated in agriculture.
  • Most of the farmers are illiterate/semi-literate and thus, are unaware of the systematic account keeping methods.
  • With increasing suicides, taxing the agricultural income may increase the fear of more.

What could be done?

  • Start with partial taxation.
  • Setting a threshold of say, 5 acres for eligibility of taxation.
  • Providing necessary exemptions like exemptions of income from rice/wheat/pulses fields.
  • Agriculture is a state subject and thus, consultations with the states regarding the same need to be carried out.
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