In a welcome move targeted at rich farmers getting undue tax relaxations, the finance ministry, in a response to questions from the Parliament’s Public Accounts Committee, has said that tax authorities will scrutinise more strictly the details of agricultural income where it exceeds a threshold of Rs. 10 lakh a year.
Farm income in India is exempt from tax under section 10(1) of the Income Tax Act, 1961. Also, any proceeds from rent, revenue or transfer of agricultural land and incomes from farming are considered agricultural income.
Dodging tax by passing off earnings as agricultural income is a known tactic by rich farmers. A paper by the erstwhile Planning Commission had mentioned that even If only the top 0.04% of big farmers and agri-firms at the top 30% bracket are taxed for farm income, the annual tax gains can be achieved up to ₹50,000 crores.
To overcome the income tax department’s contention that it did not have sufficient manpower, the finance ministry has devised a method of direct scrutiny of tax-free claims in cases where agricultural income is shown to exceed ₹10 lakh.
Though taxing agriculture income remains a very touchy political issue, the initiative to oblige the rich farmers to go through tougher scrutiny and robust checks is the need of the hour. However, It remains to be seen how well such a move succeeds on the ground.