Dodging tax by passing off earnings as agricultural income is going to become more difficult as thorough checks are adopted, the government has informed Parliament's Public Accounts Committee, which has highlighted many lapses in giving blanket exemptions.
Super-rich farmers will confront stricter scrutiny from tax authorities, who will brush through specifics of agricultural income, which is tax-free under the law, in jurisdictions in which the income of farmers surpasses a threshold of 10 lakh per year, according to the finance ministry in response to the questions from a parliamentary committee.
According to the committee, authorities allowed tax-free claims in around 22.5 percent of cases without sufficient evaluation and verification of documentation, leaving room for tax evasion.
On Tuesday, the panel issued its 49th report, "Assessment related to Agricultural Income." It is based on a report by India's Auditor and Comptroller General.
In one such example, a tax exemption was granted on the agricultural income of Rs.1.09 crore derived from the sale of farmland in Chhattisgarh.
In the following example, the parliamentary panel stated that authorities had not verified "documents" that support a tax waiver in "assessment records," nor were they "addressed in the assessment order," pointing to breaches.
Agricultural income is free from taxation under section 10(1) of the Income Tax Act of 1961. Under the legislation, agricultural income includes any proceeds from the rent, revenue, or transfer of agricultural land, as well as farm income.
The income tax department stated that it lacks the manpower to investigate all cases of fraud in all of its jurisdictions, known as commissionerates.
To address this, the finance ministry has developed its mechanism to directly scrutinize tax-free claims in cases when agricultural revenue exceeds ten lakh rupees, according to the parliamentary panel.
"The mere suggestion of an agricultural tax frightens politicians. While the majority of farmers are poor and should be excluded, there is no reason why big farmers should not be taxed", according to Naval Kishore Sharma, a former income-tax department official.
