Agricultural income earned by a taxpayer in India is exempt under Section 10(1) of the Income Tax Act,1961. What is more shocking and surprising is that this so called agricultural income is tax free without any limit. You can have unlimited amount of agricultural income without paying even a single rupee towards income tax.
While income tax is levied on all types of incomes from all the persons, why Government is not imposing any income tax on agricultural income, is a million dollar question. Some people are under the wrong impression that our Government is very considerate and sympathetic towards the farmers community and do not want to impose income tax on agricultural income of farmers. However, this is completely untrue. Had it been the intention of the Government to provide the relief to farmers by not subjecting them to income tax, it could have been done by fixing a threshold for tax free agricultural income. If some type of income is made completely tax free without any limit, it clearly means that the farmers are not the real beneficiaries of this tax exemption and there is a larger conspiracy for providing this exemption of unlimited amount, by making a provision for the same in the Income Tax Act.
You will be surprised to note that no political party, irrespective of its ideology, never wants to bring the agricultural income into the tax net. You must have witnessed that when Bills relating to increase of salaries and allowances are introduced in the parliament or assemblies, these bills are instantly passed unanimously, with all political parties happily supporting the same. This very same principle applies to total tax exemption of Agricultural Income. Since all the politicians (irrespective of their political ideology) are the real beneficiaries of this unlimited tax exemption, they are happily enjoying it. Agricultural Income is being used as a tool to convert black money into white money for the last 70 years. Most of the politicians and the persons patronised by these politicians are misusing the “Agricultural Income” route for conversion of their black money into white money.
Income Tax Department and the officers sitting in the income tax department are fully aware of this misuse of tax exemption on agricultural income but they prefer to remain silent on this “tax anarchy”, due to political reasons. If some honest officer tries to scrutinize the tax exemption on agricultural income, then entire political system begins to harass him and the officer concerned is persecuted, suspended and even dismissed from the service.
Recently Central Government has compulsorily retired 27 senior officers from various Government Departments including Income Tax, Customs & Excise Departments. Out of these 27 officers, one senior officer was investigating the agricultural income tax exemption misuse by a former finance minister in the previous Government. There are several detailed videos of this officer available on the social media, wherein the officer is explaining how the former finance minister of the previous Governments was misusing the agricultural income tax exemption to convert his black money into white money. Since the officer concerned has now been sacked, it can be safely presumed that the investigation being carried out by that officer has also died its natural death.
Before presentation of the Union Budget every year, Government invites suggestions from all stakeholders to give their suggestions for the Budget. For the last 20 years, I am giving this suggestion to Government every year that Agricultural Income should be brought into tax net. If the intention of the Government is to provide tax relief to farmers, then that can be provided by prescribing a threshold exemption limit for the agricultural income. But why any Government will accept any such suggestions, when their own interests are at stake.