Taxing agricultural income: the third rail of Indian politics

Politicians make a case for, at the very least, taxing firms which claim exemption on agricultural income despite earning crores in profits


India has not taxed agriculture since the country got independence from British rule in 1947, and taxing farmers heavily was always seen as the trademark of colonial oppression. Photo: Ramesh Pathania/Mint
India has not taxed agriculture since the country got independence from British rule in 1947, and taxing farmers heavily was always seen as the trademark of colonial oppression. Photo: Ramesh Pathania/Mint

Politicians are now beginning to look to touch the third rail of Indian politics—taxing agriculture.

Two members of Parliament—Bhartruhari Mahtab of the Biju Janata Dal and Saugata Roy of the All India India Trinamool Congress—made a case for, at the very least, taxing companies which claim exemption on agricultural income despite earning crores in profits in the finance bill discussion on Wednesday. Mahtab went a step further and sought a tax on rich farmers who own more than 50 acres of land and whose agricultural income exceeds Rs.1 crore.

India has not taxed agriculture since the country got independence from British rule in 1947, and taxing farmers heavily was always seen as the trademark of colonial oppression. At that time, Indian politicians, all of whom were associated with the freedom struggle, made a conscious decision not to tax agricultural income.

However, after almost 70 years of independence, the Indian political class and the government are signalling a rethink as this provision is being used by even big farmers and companies whose income is in crores of rupees.

The Economic Survey, the government’s annual publication preceding the budget, also made a case for taxing agricultural income of the well-off.

Speaking in the debate on the finance bill, Mahtab said, “It is reasonably well known that income from agriculture attracts no taxes in our country. It is a legacy that we have inherited because most of our freedom fighters were fighting for the farmers against the harsher taxes that were imposed on the farmers during that time. Invariably after 1947, most of the governments said, ‘no tax on agriculture’.”

“What is quite known is that there are more than 4 lakh taxpayers claiming exemption from agriculture income in the assessment year 2014-15. The biggest were seed giants like Kaveri Seeds - which claimed Rs.186.63 crore exemption and made a profit of Rs.215 crore before tax—and multinational Monsanto India, which claimed Rs.94 crore as exemption from agriculture income and earned Rs.138 crore profit before tax,” he said.

“Not taxing the agriculture produce of the farmers is one thing but not taxing the companies who are earning thousands of crores of rupees? Individual farmers or companies farming more than 50 acres, they are given agriculture income exemption. It makes no sense,” he added.

“Monsanto India Limited (MIL) is a law-abiding entity. Its claim for exemption is in accordance with the law and is supported by judicial precedence,” a spokesperson of the company said in an email response.

An email sent to Kaveri Seeds remained unanswered.

Later, speaking to Mint, Mahtab questioned the logic of giving a tax exemption to a farmer who earns more than Rs.1 crore or owns more than 50 acres.

He pointed out that there are around eight companies who claim tax exemption and still earn profits in crores.

“The central government needs to reach out to the state governments since agriculture is a state subject and see how they can be brought under the tax ambit,” he said adding that some states like Kerala and Assam tax plantations.

Roy of Trinamool Congress also urged the government to tax companies earning agricultural income, pointing out that increasing the direct tax base is necessary and urged it to not increase indirect taxes given their regressive nature.

‘Who are getting the benefits of your tax exemption to agriculture? The biggest seed giant is known as Kaveri Seeds. They have claimed Rs.186.63 crore exemption; next is Monsanto India, an Indian subsidiary of a multinational company, have claimed Rs.94.404 crore exemption. We have not been able to enlarge our tax base and hence, we have not been able to improve the tax-GDP ratio sufficiently,” he said.