Exemptions and non-taxation of agricultural income in India have recently been the subject of debate. Should agriculture income be taxed? What are the difficulties of charging agricultural Income Taxation in India? Read further to know more.
Nearly all nations, especially developing ones where agriculture is still a large industry and provides employment and a means of subsistence for a sizable portion of the population.
In India, agriculture is regarded to be the Country’s main occupation. India’s sizable rural population frequently serves as their sole source of income. For its basic food needs, the nation as a whole is totally dependent on agriculture. The government has implemented several programs, laws, and other steps to encourage expansion in this industry.
Until now, governments have resisted efforts to impose taxes on farmers’ income.
Agricultural income is not taxable under Section 10 (1) of the Income Tax Act since it is not included in a person’s total income. However, if agricultural revenue surpasses Rs.5,000 per year, the state government may levy a tax on it. It is classified as a legal source of income and essentially refers to revenue from sources including commercial agricultural produce, structures on or connected to the agricultural property, and agricultural land itself.
Whether or not agricultural income should be taxed is a matter of debate and can depend on a variety of factors such as the size and profitability of the farm, government policies and economic conditions.
Some argue that taxing agricultural income could discourage small farmers and lead to a concentration of ownership, while others argue that it would create a more level playing field for businesses and generate revenue for government programs.
Ultimately, the decision on whether or not to tax agricultural income is typically made by the government and can be influenced by various factors.
Why Should Agriculture Income be Taxed?
- Even in the 1980s, there was discussion in India about how to properly tax the agricultural industry because many farmers earn more money than non-agriculturalists who pay income tax.
- The excess produced in the regions where the Green Revolution took place is frittered away on ostentatious expenditure. Therefore, the government must utilize taxation to collect a portion of these surpluses.
- Proper taxation of agriculture is required for better land utilization. Progressive taxation of agricultural land or agricultural revenue is anticipated to result in a decline in land values.
- The numerous agricultural development projects being implemented require a significant financial investment. India’s agriculture has undergone significant modernization, and there is taxable capacity as well as increased output has occurred.
- There is underutilized taxable capacity in the agricultural industry as a result of improved inter-sectoral terms of trade.
- Farm taxes would encourage financial stability and gradually include more and more areas in the monetized sector.
- Japan derived a significant portion of its industrialization resources from agriculture. China and the Soviet Union also did.
- Utilize resources from this industry to mobilize the supplies needed to hasten the expansion of agricultural output.
- Taxing agricultural income might increase a big portion of farmers’ access to financing because verified income tax returns can give a reliable indication of a farmer’s future earnings.
- Small and marginal farmers will demand improved services, infrastructure, and facilities if agricultural income is taxed.
- Additionally, it will provide farmers in this nation a strong incentive to form associations, demand accountability, and try to influence development debates rather than just accept their status as beneficiaries.
- Farmers in the nation will be able to form the habit of saving for their bright future in the years to come if income tax is collected on agricultural income, particularly because the income-tax provision gives tax deductions on specific investments etc.
Recommendations to Tax Agricultural Income
Dr. K.N. Raj presided over the Committee on Agriculture Taxation in 1975. The committee’s recommendation was to tax wealthy individuals’ agricultural revenue.
Dr B.D. Ambedkar, a man of imposing personality and profound vision, supported taxing agricultural revenue with his persuasive arguments.
Difficulty in Taxing Agriculture Income
- Family labour plays a significant role in the revenue-generating process in agriculture, which is typically a sole proprietorship. The issue of depreciation and capital replacement is more difficult to solve.
- Large annual revenue fluctuations, a lack of monthly periodicity in collections, and the integration of production, transportation, and sale of products make it challenging to develop an agricultural income tax.
- When considering taxing agricultural income in light of the rising suicide rate among agriculturalists, some may be concerned that this will lead to an increase in agriculturalist suicides.
- Assessing an Indian farmer’s true income or income-earning potential becomes difficult because a large portion of them are illiterate or semi-literate and do not keep systematic books of accounts regarding their production and income.
- It is also possible to worry that the imposition of tax will result in credit only going to large farmers because they have more income to demonstrate.
Proposal to Raise Agriculture Tax
Tax officials specifically recommended that the government think about taxing agricultural revenue, albeit only partially.
People with agricultural income and regular income who earn more than a particular amount can be brought into the tax system.
Fix a progressive tax for other farmers and exclude 71% of farmers who have 5 acres or less from land revenue.
Additionally, the government may not tax agricultural income that is produced from the cultivation of rice, wheat, and vegetables.
Let the government begin collecting agricultural revenue, particularly that of wealthy farmers, and then let it examine the impact, the tax collection, and the issues before coming up with a change to agricultural tax income.
It is true that taxing agricultural income is a State issue, but just as the Government debated the GST with the States, it is time for it to do the same with taxing agricultural income.
It is highly believed that if agricultural income is taxed and if the taxation policy is created in a very rational manner, it will not negatively affect the average farmer.
The government should invest all income-tax proceeds from taxing agricultural revenue towards the expansion of agricultural operations in the first two to three years.
In order to debate and examine the issues surrounding the taxes on agricultural income in India, it is necessary for all political parties and Chief Ministers to arrange a conclave.
The focus of the conversation should be on the direction of the country, not on one person’s personal interests or those of a certain political party.
If there is this kind of debate or discussion in the nation, then policymakers may be able to determine that after decades of agricultural revenue being exempt from taxation, it is now time for agricultural income to be taxed like any other normal income of the taxpayer.
Taxing the product is one solution, which is currently also being done in some States through a mandi tax or another mechanism.
The consumer will ultimately pay more for the product as a result of this tax being passed forward to them.
By taking this action, it will be made sure that the tax does not interfere with the farmer’s revenue. In a strict sense, this would be an indirect tax on goods, similar to an excise or sales tax, which will be incorporated into the GST. The farmer’s income will continue to be exempt from income tax.
Before there is even consideration of including the sector in the income tax net, the procurement policy, price policy, and public distribution system must be taken into account.
Developing a technique that considers agricultural income above a particular threshold is necessary.
Regardless of whether one is a farmer, income taxes are required to be paid if one’s income exceeds a certain threshold. Regardless matter whether they are in agriculture, the poor should be exempt.
Rich farmers would be obliged to pay income tax if the government decided to tax agricultural income, which would enhance government revenue, boost the country’s GDP ratio, and ultimately aid in the overall development of the nation.
Every political party should keep in mind that the nation comes first, not simply vote politics if they truly wish to tax agricultural income in India.
Currently, farmers in India are exempted from paying income tax to the government. However, if agricultural revenue surpasses Rs.5,000 per year, the state government may levy a tax on it. It is classified as a legal source of income. I think it is a good decision taken by the government to support low-income farmers and reduce their burden of taxation, However, the Government should be ready to levy tax on farmers who earn higher incomes from Agriculture.
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Article written by Aryadevi E S