Agricultural Income Tax in India: Introducing Threshold-Based Tax Exemption

Abstract

Agricultural income earned by a person in India is exempted from taxation as far as the Income Tax Act, 1961 is concerned. This article explores the case for introducing threshold-based Agricultural Income Tax (AIT) exemption in India. The article examines this proposal using the existing literature and body of work available on the subject. The study comes to the conclusion that the existing blanket exemption on agricultural income is undesirable from the perspective of fiscal policy and principle of equity. It is suggested that a reasonable monetary threshold should be defined above which agricultural income will be subject to taxation at the national level. The findings indicate that such a measure will increase revenues, check tax evasion and widen the tax-base in the country. It has also been proposed that AIT should be implemented by the Central government at the national level, and the local government authorities must also be involved for information collection and monitoring at the ground level. Finally, the study suggests some policy strategies to implement and administer threshold-based AIT in India.