EXEMPTION OF AGRICULTURAL INCOME..!

Agriculture plays a crucial role in Indian economy as it employs about 70% of the countrys population and contributes around one third of national income.

Agricultural income is fully exempted from tax under Sec. 10(1).

However, it is taken into account to determine tax rate on non-agricultural income. The basic reason for this exemption is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural income to the State Governments.

Besides this, agriculture is considered as labour intensive, largely dependent on nature and Government wants growth of agriculture for economic development of rural areas.

However, now the economic realities have changed, agriculture has become capital intensive and production with modern technology has been started on commercial lines leading to increase in the income level of farmers.

Therefore, exemption of agricultural income is hard to justify in a developing country. It is surprising that low salaried employees and small traders are taxed whereas rich farmers are exempted. It is perceived that the exemption provision is widely misused to evade tax by declaring non- farm income as farm income by assessees whose income comprises agricultural and non agricultural income.

Thus, there is a need to bring agricultural income under the purview of Income Tax Act by amending constitution.

It would not affect small farmers who are mainly dependent on agriculture as they would get benefit of threshold limit at par with other assessees.

However, there is a need of strong political will power to incorporate this reform in taxation system.

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