Agriculture is the main part of the Indian economy. 70% of the Indian population is based upon agriculture and derives its income from agricultural operations. But u/s 10 (I) of the Indian Income Tax Act, 1961, agricultural income is fully exempted from tax. The basic reason behind exemption is that our economy is agriculture based and if agricultural income is taxed, production will decline resulting in shortage of food grains. The article tries to evaluate the present taxation policy with reference to agricultural income and highlights the concept of agricultural income, agricultural taxation policy in India, integration of agricultural income with other non-agricultural income and its impact on tax liability.

Even though India is an agro-based economy, u/s 10(I) of the Indian Income Tax Act 1961, agricultural income is fully exempted from tax. As a result, agriculture income does not form part of the total income. Agricultural income being exempted from tax as under Article 270 of the Indian Constitution, Central Government cannot levy any tax on such income because agriculture is a State subject. In case of J Ragho Rama Reddy vs I.T.O. (1988) 169 I.T.R. (A.P.) it has been held that parliament is not competent to tax agriculture income.

Due to green revolution, the agricultural income increased and a demand was raised to levy tax on such income. A committee on taxation of agricultural income was set up under the Chairmanship of KN Raj. This committee recommended that agricultural income must remain exempted from tax. On the other hand, it suggested a system of integration of agricultural income with non-agricultural income in certain cases, which was introduced from the assessment year 1974-75.

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