Arun Jaitley rules out central govt taxing agricultural income

New Delhi: Finance minister Arun Jaitley on Wednesday ruled out any plan by the central government to tax agricultural income in response to suggestions to that effect in a vision document that federal policy think tank Niti Ayog circulated among chief ministers on Sunday.

A statement from finance ministry said quoting the minister that as per Constitutional allocation of powers, the central government has no jurisdiction to impose tax on farm income.

“I have read the paragraph in Niti Ayog report titled ‘Income Tax on agriculture income’. To obviate any confusion on the subject, I categorically state that the central government has no plan to impose any tax on agriculture income,” the statement said quoting Jaitley.

The draft 15-year vision document, which entails a seven-year strategy and a three-year action plan covering about 300 specific issues, had suggested widening of the tax base and simplification of the tax system. What complicates tax laws and leads to litigation is the host of exemptions given to various classes of tax payers. Niti Ayog Member Bibek Debroy had on Tuesday said at a press conference called to brief on the vision document that the long-term vision entailed suggestions that warranted institutional changes including amendments to parts of the Constitution.

“In order to widen the tax base of personal income tax, besides removing tax exemptions, rural income including agriculture income could be taxed,” Debroy had said on Tuesday.

For expanding the tax base, the tax department had earlier examined the possibility of reducing personal income tax exemptions too, but decided against it as it will adversely affect the savings rate in the economy.

Taxing income from agriculture, though it accounts for about 15% of India’s $2.2 trillion gross domestic product, is a politically sensitive issue and successive governments have stayed away from it. After Jaitley made it clear the central government has no plan for it, Niti Ayog distanced itself from the idea, saying that “the views on taxing farm income expressed by Member Bibek Debroy were personal and not those of the Aayog.”

Experts said that taxing agriculture income is a state subject and many states have in the past taxed it. “Taxing farm income is a political issue. But to expand the tax base, states could look more closely at many non-urban activities that are not covered by the tax exemption for agriculture, but are still not taxed,” said Rahul Garg, partner, PwC. Such activities are the likes of leasing out tractors and other allied services which are different from agriculture.

The current policy of widening direct tax base focuses on getting more individuals to file returns of income and on the corporate tax front, on weeding out tax exemptions and not to renew expiring ones. Reducing corporate tax exemptions will enable the government to reduce the tax rate to 25% eventually from 30% and applicable surcharges now.