Subhash Lakhotia
Tax Guru : CNBC Awaaz, Tax & Investment Consultant
For the last so many decades the agricultural income derived in India by tax payers of India is completely exempt from income-tax. A question now crops up in our minds is whether such agricultural income should be taxed right now. Those who are deriving the agricultural income will surely not like this income to be a part of the taxable income. But the fact remains that in a country like India where huge expenditure is still required for the development of the infrastructure and also because of the fact that the GDP ratio is not in tune with the desired benchmark and keeping all these factors in view, I strongly feel that it is time now to tax the agricultural income of the agriculturists in India.
Substantial revenue will be collected by the Tax Department in case agricultural income is subjected to income-tax. However, the problem in India is that because of the politics of vote bank no government can dare to touch this subject matter namely of taxing the agricultural income of the agriculturists in India. However, the fact remains that whenever we want some change in the tax laws of the country we must have a holistic approach to the entire subject matter and that our emphasis should be debated and discussed upon without taking into consideration the political game or advantage consequent to an amendment in the tax provision. It is in this light that I strongly feel that we should have a very purposeful and objective debate on all India basis to decide whether to tax or not to tax the agricultural income derived by agriculturists.
The fact remains that fiscal concessions are granted by the statute to certain categories of tax payers to achieve a particular goal. For example couple of years ago the exporters of India were granted complete tax holiday in respect of their foreign exchange earnings. Now the Government feels that this category of tax payers are right now out from the clutches of the problems and that is reason that export income is now subjected to income-tax. Whenever the point comes of taxing the agricultural income the eyes of the statute makers is focused on one single objective namely the impact on the next elections.
A real bold and dynamic approach is now needed in India whereby all the political parties and all the Chief Ministers of India organize a conclave to debate and discuss the issues concerning taxation of agricultural income in India. The discussion should be held primarily with reference to the national outlook and not personal gain or otherwise to a political party. If this type of debate or discussion takes place in the country, then surely the policy makers may be able to come to the conclusion that after decades of exemption of agricultural income now is the time that agricultural income be put to tax like any other normal income of the tax payer.
Persons who are engaged in cultivation and produce agricultural income always enjoy the sympathy of the statute makers of the country. The rising trend in suicides being committed by agriculturists also goes to support the sympathy in favour of the agriculturists of the country. With the rise in the suicide rate by the agriculturists more and more sympathy goes in favour of agriculturists and at that point of time to think about taxing agricultural income might bring home a fear of more and more suicides being further committed by the agriculturists. With regard to suicides by agriculturists the Government should analyse the reason behind the committing of the suicide and should bring home positive ideas to control such suicides by the farmers of the country. But on the other hand taxing agricultural income should not be ignored keeping in view the rising money requirement of the country to meet fiscal deficit and to develop the infrastructure of the country.
In case income tax is levied on agricultural income without considering the real impact on the agriculturists, all those persons who are attached with the political parties would immediately jump upon to say that as a result of taxing the agricultural income, the poor farmer will virtually die because of the increased burden of income-tax on him in case agricultural income-tax is levied in the country. However, it may be noted that even if agricultural income in India is subjected to income-tax, still majority of the agriculturists I mean the marginal farmers of India will not come within the ambit of income-tax payment because in any case the basic income-tax exemption even for agriculturists would continue to be Rs. 2,00,000 per annum namely the same basic exemption which is enjoyed by any other tax payer of India. Thus, in case the Government subjects agricultural income to tax, then one need not worry about any possible hue and cry amongst the farmers of India because if the farmer is deriving income from agriculture up to Rs. 2,00,000, he in any case has not to pay any income-tax at all.
If we analyse the land holding by individual persons in India, we would find that in majority of the cases the land holding is in the name of different family members of the farmer. As a result of land holding being available in different individual names in the family, the advantage is that each family member of the farmer will get income-tax exemption up to Rs. 2,00,000 per annum even if the agricultural income is subjected to income-tax. The practical impact of this can be seen from an example of a family of five persons of a farmer and in case agricultural income is subjected to tax but still all the five family members will have a combined income of Rs. 10 lakhs in a family which would be exempt from income-tax. This is the special advantage available to a farmer and this advantage is generally not available to all those tax payers in India who are not farmers. For example in another family of five persons where the head of the family is doing a job or running a shop, he finds that income-tax exemption is available of Rs. 2,00,000 only to him because other family members who are not working or who are not running their separate shops hence have no income. Hence, from practical angle also it can be argued with confidence that if agricultural income is subject to income-tax, even then the poor farmer will have no problem with regard to income-tax payment just because of the fact that the basic income-tax exemption of Rs. 2,00,000 per annum would equally be applicable to a farmer. Hence, the law makers in the country as well as the most respected parliamentarians of the country should now think of taxing agricultural income so that tax burden is at par for salaried employees, for businessman as well as for the persons carrying on agricultural activities.
Similarly, the agriculturist, if income-tax is levied on him will also be able to save taxes over and above the basic income-tax exemption limit if he were to make investment by way of contribution to the Public Provident Fund or to a Life Insurance Policy within the framework of section 80C of the Income-tax Act, 1961. I personally feel that if income-tax is levied on agricultural income, the farmers of the country will be able to develop the habit of saving for their bright future in the years to come specially because of the income-tax provision granting tax deduction on certain investments etc., etc.
It is certain that in case agricultural income-tax is levied in India, the farmers of the country in next one decade will have more money power available at their disposal just because of the savings made by them through various investment channels so as to achieve a tax deduction in terms of section 80C of the Income-tax Act, 1961. Likewise, a farmer if he is taxed on the agricultural income apart from making a tax saving under section 80C will also be able to save income-tax like any other individual if he were to invest in a residential housing. Thus, the problem of the Government to provide housing for those who are in the villages can be a thing of the past once the agricultural income is subjected to tax and our agriculturists enjoy the same tax benefit which are available to other tax payers of the country whereby the end result after a decade would be more prosperity to the farmers, more housing being available to the farmers because of their own investment in housing sector and so on.
Driving in Mercedes cars are a common feature in Punjab particularly where large number of agriculturists buy luxury cars, luxury homes and luxury holidays. Tax Paying public of India is frustrated when they find that a tax payer doing hard work in his business after making payment of income-tax is not able to buy a Mercedes car but an agriculturist who is required to work much less in comparison with a person in a city goes scot-free for making investments in the manner he likes just because there is no income-tax on the agricultural income earned by him. Hence, if the Government takes a decision to levy tax on agricultural income, then surely the rich and famous agriculturists of India would be required to make payment of income-tax which will increase government revenue on the one hand and which will increase GDP ratio in the country and would finally help in the holistic development of the country.
Sometimes a question may also arise as to how a illiterate poor farmer will be able to comply with the formalities required for income-tax payment and maintenance of the accounts etc. to derive the taxable agricultural income. Well, the answer to this can be found out by reference to the provisions contained in the Income-tax Act specially in section 44AD whereby up to a turnover of Rs. 1 crore a person engaged in business can walk away without maintaining the accounts and is subjected to income-tax on a presumptive basis. Same set of provision can be applied even for taxing agricultural income whereby the poor and illiterate agriculturists also will not have any problem to comply with the provisions of income-tax law.
Again and again it may be noted that the so called poor small farmer in any case would be outside the clutches of payment of agricultural income-tax because the income in any case up to Rs. 2,00,000 per annum for every adult member of the farmer’s family will be exempt from income-tax. I also strongly feel that if agricultural income-tax is levied in India, then it is possible that the farmers would be tempted to go in for research based new innovations in agriculture and would be seen using new technology, new machinery and new vistas to achieve higher agricultural output which will be helpful to the country. Hence, if agricultural income-tax is levied in India then fruit juice, ayurvedic herbs production and such other connected activities in agriculture will flourish and there would be desire amongst the agriculturists also to achieve more output from the land which they own. It is expected that dynamism amongst the agriculturists will be on fast track in case agricultural income-tax is levied in India.
Nation first and not just vote politics should be on the back of the mind of every political party if they really want to tax the agricultural income in India. It is often seen that while the tax payers of India feel cheated because they are being subjected to income-tax and persons deriving agricultural income specially the rich farmers are not being subjected to income-tax at all. A large number of politicians as well as a large number of business community is also owning substantial part of agricultural land in India and are deriving substantial tax free agricultural income. Hence, if agricultural income is subjected to income-tax in India, it is felt that there would be no agony or problem specially to these rich farmers because they would be placed at par with other tax payers of India earning big income and engaged in non-agricultural income producing activities.
If the Government finds that it is not ready right now to tax the entire agricultural income, in that situation they may initially exempt agricultural income by farmers having land holding up to five acres and likewise to start with, the Government may also exempt taxing agricultural income in case it is derived by cultivating rice, wheat and vegetables. The theme is that at least let there be a start for taxing the agricultural income of particularly the rich farmers and thereafter let the Government study its impact, the tax collection, the problems and then come to an amendment of taxing agricultural income. It is a fact that taxing agricultural income is a State subject but just like having a debate on GST with the States the Government should now have a debate with the States for taxing agricultural income. It is strongly felt that if agricultural income is taxed and in case the policy of taxing agricultural income is designed in a very scientific manner, then it will have no adverse impact on the common farmer but the Government would find easily substantial amount coming in its kitty from the agricultural income derived by rich farmers and rich corporates.
Way back in the year 1975 a Committee on Agriculture Taxation was headed by Dr. K.N. Raj. The recommendation of this Committee was to tax agricultural income of rich. However, the same was not made law. Similarly, eighty years ago Dr. B.D. Ambedkar who was a man with towering personality and a great visionary and his view was that he favoured taxing agricultural income with his sound reasoning. He was of the view that tax should be levied on tax paying capacity or income of the tax payer and that rich must be taxed more and poor less. It was Dr. Ambedkar who criticised land revenue by the British Government as it was against the interest of the poor but according to him tax on agricultural income should be levied. Later on the Taxation Enquiry Commission which was set up in the year 1953-54 also recommended the revision of tax laws taking into consideration the changes in the prices of agricultural produce.
Later on long term fiscal policy was introduced by the Government in the year 1985 and they also recognized the concept of taxing agricultural income. In short the fact is that almost all the commissions and agencies appointed or created by the Government in last sixty years have unanimously been of the view that agricultural income should be subjected to tax but the million dollars question is that who will bell the cat. The fact remains that the law makers could not dare to taxing agricultural income mainly because of the vote bank problem. It is at this point of time that when we are thinking of devising new vistas and new means to gather finances for the development of the country the theme of taxing agricultural income specially the rich agriculturists should be taken into consideration and that it is high time now that the agriculturists be brought in the tax net. I remember couple of years ago a gentleman who was in fairly good position while he was in service when he retired he thought of just becoming a farmer and he purchased five acres of land near Chennai and he started growing coconut trees. He was able to make big money by selling coconut trees having tax free income relaxing and enjoying his blissful retirement. His only regret was that why did he not retire two decades earlier. The Government should make a study to bring agricultural income and non-agricultural income at par and for this purpose the Government should also analyse that the overall hard work done by the agriculturists be compared with hard work and long hours of work being put by a person in trade or industry or in service and then surely the Government would come to the conclusion that it is now high time to tax the agricultural income so that the rich and famous people do not walk away without contributing any money to the exchequer.
Finally, it is time now to think of taxing agricultural income and simultaneously the Government should also think of measures to enhance the income earning capacity of the agriculturists. In the first 2/3 years the entire income-tax recovered from taxing agricultural income should be spent by the Government in the development of agricultural activities and for the welfare of the agriculturists so that ultimately the agriculturist also reaps better fruits for his labour and the Government earns more revenue because of higher production of agriculture as a result of implementation of new technologies and new equipments being made available in the agriculture sector. A question I would now like to pose to each and every citizen of India is why not now the Government should be thinking on taxing agricultural income by rising above the politics and in the interest of nation building and equity to all categories of tax payers of India.
The author is Tax and Investment Consultant at New Delhi for last 40 years. He is also Director of M/s R.N. Lakhotia & Associates LLP & The Strategy Group.E-mail : slakhotia@airtelmail.in 
