Taxation in agriculture income

Taxing agriculture income

India doesn’t impose tax on agricultural income. As per Constitution, the right to impose tax on agricultural income lies with states.Nearly 90 per cent of the farmers have a farm holding of less than 2 hectares and as per present tax laws, Section 10(1) of the Income Tax Act instructs that agricultural income earned by the taxpayer in India is exempted from tax.

Taxing agricultural income can improve access to finance a large section of farmers because verified income tax returns can provide a credible signal of the earnings potential of a farmer. Well-directed agricultural loans would not only enhance agricultural productivity, but also hasten the movement of unproductive agricultural workers to the manufacturing sector, thus gives impetus to non waiving of Loans. India can also improve its present Tax to GDP ratio which is lying between 16-17% as against the Emerging economies average of 21%..

But, a one size fits all approach will not work in this sector since a lot of factors needs to be taken into account primarily agriculture sector being an informal one, intra-regional variability,crops failure and many other minute details before arriving at taxable income.The government can take the help of technology like satellite imaging to track the productivity of the region through soil data analysis.

 Government needs a holistic and inter-disciplinary approach to effectively implement the taxation system. It can use a hybrid or combined model of say crop based and income based approach or even include value of the produce.