A day after NITI Aayog member Bibek Debroy mooted the idea of bringing agricultural income under the income-tax net, Union Finance Minister Arun Jaitley on Wednesday categorically dismissed the suggestion.
"I have read the paragraph in NITI Aayog report entitled ‘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," Jaitley said in a statement, adding that "as per the Constitutional Allocation of Powers, the Central Government has no jurisdiction to impose tax on agricultural income".
The finance minister's immediate clarification on the subject is being seen as an attempt at damage control to prevent any controversy arising from the sensitive issue of farmers and rural population.
NITI Aayog in a statement on Wednesday said, "The views on taxing farm income expressed by member Bibek Debroy were personal and not those of the Aayog."
Debroy on Tuesday said the Aayog has proposed bringing agricultural income within the personal income tax net, to broaden the tax base and thereby enable the government to reduce the tax rate. The recommendation is part of a 15-year perspective plan circulated among states at the NITI Aayog’s governing council meeting on Sunday. It, however, clarified that since taxing agriculture income was politically sensitive, the think tank will finalise the draft document only after it received responses from the state governments.
Debroy has reasoned that non-agricultural entities sometimes use the blanket relief to evade taxes. "On the personal income tax side exemption should go... also tax rural sector, including agriculture income above certain threshold," Debroy said, pointing out that two-thirds of the 225 million households in India which are in rural India are effectively out of the purview of all personal income taxation.
Debroy said all agricultural income is currently exempted from income tax regardless of its size. While the provision is meant to protect farmers, non-agricultural entities sometimes use it to evade taxes by declaring agriculture as the source of their income, he said, terming it a loophole in the war against black money.