India’s economy heavily relies on agriculture, and to support farmers, the Government of India has implemented numerous beneficial schemes. One such advantage is the tax exemption on agricultural income. However, some individuals misuse this benefit by falsely declaring their earnings as farm income to evade taxes. Consequently, the Income Tax Department has initiated strict action against such cases. Let’s delve into this important update.
Income Tax Department’s Investigation Process
The Income Tax Department has begun investigating cases where individuals have claimed unrealistic agricultural income of up to ₹5 lakh per acre, which deviates from standard agricultural trends. Such figures are inconsistent with common farming practices and public data, raising suspicions of tax evasion.
The extent of this investigation depends on various factors, including the involvement of influential individuals like politicians and high-profile landowners. As a result, these inquiries may create ripples in some regions.
Why Is the Investigation Happening?
Under current tax laws, agricultural income is exempt from income tax and GST. However, recent investigations, particularly those linked to the Directorate of Income Tax Investigation in Jaipur, have uncovered instances where institutions claimed over ₹50 lakh as agricultural income in their tax returns. The department believes that these cases may involve fraudulent activities, prompting immediate investigation.
How to Avoid Penalties
To avoid penalties and legal trouble, farmers and landowners must:
- Provide Sufficient Proof of Agricultural Activities: Ensure clear evidence that the land is being used for farming.
- Use Satellite Imagery Verification: Authorities are utilizing satellite images to confirm farming activities on claimed agricultural lands.
- Disclose Non-Agricultural Income: Income from land plotting, urban land sales, renting farmhouses for commercial use, and poultry farming does not qualify for agricultural tax exemption and must be declared correctly.
What Income Qualifies for Tax Exemption?
According to the Income Tax Act, 1961, tax-exempt agricultural income includes:
- Sale of agricultural produce
- Rent from farmland located outside municipal limits
- Capital gains resulting from the sale of agricultural land that doesn’t qualify as a “capital asset” under Section 2(14)(iii) of the Income Tax Act
Land Sale and Tax Reporting Guidelines
When agricultural land is sold, the details may not always reflect in income tax returns or official records. This lack of documentation has raised concerns and resulted in stricter scrutiny. To resolve such issues, individuals must present valid land sale agreements and transaction records to confirm the authenticity of their claims.
Conclusion
The Income Tax Department‘s latest crackdown aims to prevent tax evasion through false agricultural income claims. Farmers and landowners must ensure their agricultural earnings are legitimate and properly documented to avoid penalties. Providing clear proof of genuine farming activities and correctly reporting non-agricultural income is crucial to staying compliant with tax regulations.
