Taxing Agricultural Income!
Can Agricultural Income be taxed in India?
Sure, by common consent, we gave ourselves a Constitution which provides for taxation of agricultural income, but who is authorised to make legislation on taxation of agri incomes? Under entry 46 of List II of the Constitution the States are EXCLUSIVELY EMPOWERED TO LEVY TAX ON AGRI INCOME.
Does the law prohibit levy of tax on agri income anyone else?
Yes, under entry no. 82 of the List I of the 7th Schedule, the Union is PROHIBITED FROM LEVYING INCOME TAX ON AGRICULTURAL INCOME.
So where is the confusion?
As the Constitution stands, there is NO LEGISLATIVE COMPETENCE FOR THE UNION TO LEVY INCONE TAX ON AGRI INCOME. When there cannot be a law enacted for taxation by the Union, why the itch to tax agri income as a Union Taxable Income ?
It has been reported that agri incomes totalling @ inr 3000 crore escapes taxation under income tax based on personal/ corporate holdings generating income from agriculture!
Who gave the Union authorities to make an estimate regarding income arising out of agriculture and account it as ‘escaping’ taxation? Especially when the income is mandated under the constitution to be taxable by the States!
I know of at least one state which has enacted a law on this subject and that is the Kerala State in 1991.
Agri incomes in Kerala are taxed and from a cursory reading of the Act, it only taxes incomes from holdings over 5 hectares of land and the income arising there from are taxable.
I also remember that there was a case decided by the Chief Justice of the Kerala High court in 2004, along with a puisne judge Sh. Sankaran, wherein the issue was whether income arising out of a building, which was in the vicinity of the agri area and used for storage arising out of non clearing of the produce by the buyer of the produce, and the rent/ charges earned by the company was to be taxed, as Agri income or not.
The CJ of Kerala concluded that based on the 1991 State Act, the income was Agricultural and hence taxable under that statute.
There is at least one state which has enacted a statute to tax Agricultural income, so it is not an unoccupied field either. So why COVET A STATE SUBJECT?
Robbing Peter to pay Paul has been the mantra for all financial policies . National law making is getting covetous of the potential gains arising from taxing some states, especially those states which earn out of cash rich cash crops and “use” it for “national development”!
The Constitution has given enormous powers under List I of the Constitution for the Union to develop/ protect the Nation, whereas agriculture which is terrain, climate, and worker based is best left in the hands of the state politicians who could within a short period react to situations emerging or even make distinctions based on the quality of land and climatic conditions, for example certain produce from certain taluks are taxed at a higher rate than similar produce from certain other taluks, and give concessions based on their disabilities. Sitting far away from the terrain, how would it be proper or pertinent to make laws and change rules compatible with the exigencies of the climatic conditions prevalent in those areas. The time lag to take corrective measures from a far off place would be time consuming.
Another important factor is that the ruled should believe that they are being ruled by a Ruler sensitive to their needs. That makes it mandatory to have a local person’s face to the ideology! Whatever that may be😊
February 27, 2018