Indian Agricultural Income Lessens the Income Tax Burden: A Fiscal Illusion

Abstract

The Indian income tax law spares the Indian agricultural income from payment of income tax because charging tax on agriculture produce or keeping it exempted is a state subject. But from the financial year 1974-75 by an amendment the Union government increased the tax burden on the taxpayer having both agricultural as well as non-agricultural income. This system was executed as an enforcement of the provisions of “Partial Integration of agricultural income with non-agricultural income” for tax rate purposes. As a result taxpayer bears more tax burden on his non-agricultural income due to his agricultural income which otherwise comes under the category of exempted incomes. The paper highlights the fact that how a fiscal illusion is created by increasing the tax rates. State governments need to raise this issue at appropriate platforms to question why government is collecting additional tax revenue against the agricultural income which is the state subject.