I-T Department Probes Dubious Agricultural Income: Here’s What Taxpayers Need To Know

For years, agricultural income has been a convenient loophole for tax evasion, with many individuals and entities using it as a means to convert black money into white. The income tax department (I-T Dept) has now initiated a nationwide crackdown on questionable claims of agricultural earnings.

According to a report by the Economic Times, tax authorities are now scrutinising cases where individuals have reported huge agricultural incomes, often exceeding Rs 50 lakh, despite not owning any land.

Why the Crackdown

According to income tax laws, agricultural income is tax-exempt. Some taxpayers, however, have misused this exemption and declared farm income from agriculture that does not match the reality. Tax authorities have now flagged cases where the income from agriculture is unrealistically high, with some declarations reporting an income of Rs 5 lakh per acre. The report said that this is against general trends and publicly available data.

The probe began with some investigations in Jaipur where officials noted a pattern of false agricultural income claims. The officials identified entities claiming an agricultural income exceeding Rs 50 lakh in their income tax returns (ITRs).

To probe such matters, the taxmen often use satellite imagery and land records to verify if these claims hold up. If the taxpayers under radar cannot provide proof, such as records of agricultural activities or land ownership, they may end up paying penalties and tax reassessments.

What is considered as ‘Agricultural Income’

Under income tax laws, to qualify as agricultural income, one’s earnings must come from activities directly related to farming, such as;

• Sale of farm produce from land located outside municipal limits

• Rent received from leasing out agricultural land

• Capital gains from selling rural agricultural land

However, many transactions that seem related to agriculture do not qualify for tax exemptions. For instance, capital gains received from agricultural land under the following cases will not be counted for tax exemption;

• Income from selling urban agricultural land,

• Commercial use of farmhouses, or

• Converting land for non-agricultural purposes

In some cases, tax authorities also probe cases where a farm land has been sold at prices lower than the government’s stamp duty valuation which might indicate an attempt to hide taxable income.