Why is income from agriculture tax-free in India?

Non-taxation and exemptions of agricultural income in India has been a subject of debate in recent times. In this episode, we will focus on difficulties in taxing agricultural income. Plus we will explore if it is a good idea to tax agriculture income.

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Agriculture is the country’s main occupation, providing job opportunities to many. While many feel that the sector should be taxed, it will have several downsides.

Under Section 10 (1) of the Income Tax Act, agricultural income is not taxable. The section has been the topic of many debates. While a group of experts feels agricultural income should be taxed, there are still many who are not convinced.

Let us explore the pros and cons of taxing agricultural income.

In the 1980s, a group of lawmakers felt that the agriculture sector must be taxed because many farmers made more money than compared to many industrialists of the time. India’s agriculture sector had undergone several transformations since the 80s. While it was difficult to tax agricultural income in the 80s, the same is not true for modern times. Taxable capacity has increased several times due to the modernization of the sector.

Farm taxes would bring financial stability, making the country more prosperous. 

While taxing agricultural income may sound like a bright prospect for the Indian economy, the ground realities are much different.  A very large population of Indian farmers is illiterate, which makes it difficult to access the Indian farmer’s income. Furthermore, most farmers don’t even have sufficient land and work on land provided by others. The concept of “Adhiya” can be found in much of North India where landowners give away land to farmers and take half the produce after harvesting. Taxing agricultural income would become tricky in such cases because most landowners reside in cities and would be discouraged from giving away land to farmers.

Suicide by farmers is another point to take into consideration. Due to the lack of support, more and more farmers are committing suicide every year in India. An article published on Clear IAS mentions the following:

“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.”

Keeping the agriculture sector tax-free until the industry is completely modernized is the best way forward.

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