Tax: Those who take tax exemption by declaring agricultural income are in trouble, the department has started investigation..

People have been using agricultural income and sale of agricultural land for decades to save income tax. It has also been used to convert black money into white. But now the Income Tax Department (IT) is investigating it across the country. The department has started paying attention to cases in various states where individuals or entities have shown agricultural income of Rs 50 lakh or more despite not owning any land.

The Income Tax Department is also investigating cases where an unrealistic agricultural income of Rs 5 lakh per acre has been declared, which does not match with general trends and publicly available data. This matter depends on how deeply the tax office investigates. This investigation can stir up some areas, especially when it comes to direct and indirect land ownership of politicians and other influential parties.

Why is the investigation being done?

Under the tax law, agricultural income is exempted from income tax and Goods and Services Tax (GST). The current investigation relates to certain cases involving the Directorate of Income Tax Investigation, Jaipur, in which entities were identified who were claiming agricultural income of more than ₹50 lakh in their income tax returns. The department feels that such claims show the potential for a scam, and has initiated an investigation.

What to do to avoid this

These farmers identified by the department will have to submit sufficient proof of using the land for agricultural purposes. Especially since satellite images have previously been used to confirm agricultural activities. Income from non-agricultural sources, such as earnings from land plotting and sale, sale of urban agricultural land, renting out farmhouses for commercial use, poultry farming, and similar activities are not eligible for tax exemption and are required to be reported for tax.

What things are tax exempted for?

Agricultural income may include the sale of farm produce or rent from lands that are outside municipal limits. Areas that have a minimum population under the law. Tax-free income from agricultural land may also be from capital gains arising from the sale of agricultural land which does not fall under the definition of capital asset as defined in section 2(14)(iii) of the Income Tax Act, 1961. Similarly, in the case of the sale of agricultural land, the details of the land may not appear in the income tax returns or records of the tax department, and hence doubts may arise which can be clarified with the land sale agreements. However, on the production of transaction records, it can be concluded that there was indeed a sale of agricultural land.

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