The Indian government is poised to introduce the Income Tax Bill 2025, aiming to replace the six-decade-old Income Tax Act of 1961. This initiative seeks to simplify the tax code, reduce litigation, and make tax laws more accessible to the general populace. A significant area of interest is the treatment of agricultural income and farmland under the new bill.

Current Exemption of Agricultural Income

Historically, agricultural income in India has been exempt from income tax. This exemption acknowledges the unique challenges faced by the agricultural sector, including dependence on monsoons, fluctuating market prices, and the essential nature of farming for national food security. The existing tax framework aims to support farmers by not imposing a tax burden on their agricultural earnings.

Proposed Changes in the Income Tax Bill 2025

The Income Tax Bill 2025 proposes to maintain the exemption on agricultural income. However, while the core exemption remains intact, the bill introduces measures to streamline tax provisions and reduce ambiguities. The bill aims to condense the law from over 800 pages to 622 pages, eliminating redundant sections and replacing complex provisions with clearer ones. This effort is designed to reduce legal disputes and encourage voluntary tax compliance.

One of the key aspects of the new bill is making taxation laws more transparent. By removing obsolete provisions and simplifying complex tax clauses, the government aims to ensure that the laws are easier to understand and implement. Additionally, the bill seeks to close loopholes that were previously exploited for tax avoidance. Though agricultural income remains untaxed, certain transactions related to land sales, leasing, and agribusiness partnerships may see tighter scrutiny.

Implications for Farmers and Agricultural Stakeholders

The retention of the agricultural income exemption is a relief for farmers, ensuring that their primary source of livelihood remains untaxed. This move acknowledges the unpredictable nature of farming and the importance of supporting the agricultural community.

However, it’s essential for farmers and stakeholders to stay informed about other provisions in the bill that might indirectly affect them. For instance, changes in tax deduction at source (TDS) norms, adjustments in tax slabs, or modifications in definitions related to agricultural activities could have implications. Engaging with tax professionals and attending informational sessions can help in understanding and navigating these changes effectively.

Farmers involved in agribusiness ventures should also remain aware of any new reporting requirements. While direct farming income remains exempt, revenue from processing, trading, or contract farming could come under scrutiny depending on how it is categorized under the new framework. The government may introduce specific guidelines for distinguishing between core farming activities and agribusiness operations.

Key highlights for agricultural income

Cultivation of Land: Tax exemption remains, but now requires stricter documentation to verify farming activities.

Rent or Revenue from Agricultural Land: Income from leasing agricultural land in urban areas is now subject to taxation.

Processing of Agricultural Produce: Value-adding processes beyond marketability requirements are now taxable.

Income from Nursery Operations: Traditional nursery activities are exempt, while commercial nurseries are now taxed.

Income from Dairy Farming: Dairy, poultry, and fisheries income are now fully taxable, not considered agricultural income.

Agro-Based Industries: Tax incentives have been reduced, with small-scale agro-industries retaining benefits while large agribusinesses face higher taxes.

Key highlights for agricultural income

• Cultivation of Land: Tax exemption remains, but now requires stricter documentation to verify farming activities.

• Rent or Revenue from Agricultural Land: Income from leasing agricultural land in urban areas is now subject to taxation.

• Processing of Agricultural Produce: Value-adding processes beyond marketability requirements are now taxable.

• Income from Nursery Operations: Traditional nursery activities are exempt, while commercial nurseries are now taxed.

• Income from Dairy Farming: Dairy, poultry, and fisheries income are now fully taxable, not considered agricultural income.

• Agro-Based Industries: Tax incentives have been reduced, with small-scale agro-industries retaining benefits while large agribusinesses face higher taxes.

Comparative Perspective: Global Trends in Agricultural Taxation

Globally, the taxation of agricultural income varies. In some countries, agricultural income is taxed similarly to other forms of income, while others offer exemptions or reduced rates to support their farming communities. For example, recent discussions in the UK have highlighted debates over taxing inherited farmland, with concerns about the potential impact on family-run farms and food security.

In the United States, agricultural taxation follows a mixed model where direct farming income is subject to tax, but numerous deductions and credits exist to offset the burden. European nations often provide subsidies or tax relief to farmers, recognizing the crucial role of agriculture in sustaining national economies.

India’s decision to continue exempting agricultural income aligns with its policy of supporting the agrarian sector, which employs a significant portion of the population and plays a crucial role in the country’s economy. However, experts suggest that India could consider adopting a more nuanced approach in the future, where large agribusinesses contributing significantly to national revenue might be taxed differently from small-scale farmers.

Potential Areas for Future Reform

While the current bill does not introduce taxation on agricultural income, discussions on tax reforms in agriculture are far from over. Some policymakers argue that large-scale commercial farms and agribusinesses should contribute to the tax net. The challenge lies in distinguishing between subsistence farmers and those earning substantial profits from agricultural ventures.

Additionally, experts suggest that improving taxation on land transactions could be an area for future policy refinements. Since agricultural land sales can sometimes be used for tax avoidance, defining clearer rules on capital gains taxation in farmland transactions could strengthen the revenue system without burdening genuine farmers.

End Note

The Income Tax Bill 2025 represents a significant step towards modernizing India’s tax framework. For the agricultural sector, the continued exemption of agricultural income is a positive affirmation of the government’s commitment to supporting farmers. As the bill progresses through legislative processes, it is crucial for all stakeholders to stay informed and engaged, ensuring that the final provisions align with the needs and realities of India’s diverse agricultural landscape.