India Tax Authority Uncovers Widespread Misuse of Agricultural Income Exemption

Officials said there were instances where land sold to developers was used to show capital gains as agricultural income. In some cases, authorities used satellite maps to detect misuse of the tax provision

NEW DELHI: The Central Board of Direct Taxes (CBDT) has come across many cases where individuals have claimed income tax exemption on agricultural income without having any land holdings. Over 300 cases have been identified by the authorities - just through data analysis - where the exempt income claimed was between Rs 50 lakh and Rs 400 crore, but the declared size of land holdings was zero. In these 310 cases, the amount of exemption claimed - which means tax foregone by govt -added up to Rs 2,038 crore, according to CBDT officials. Investigations have revealed that different tools were used to make "non-genuine" claims, which included capital gains being passed off as farm income. Officials said that there were instances where land had been sold to developers and capital gains on it was sought to be shown as agricultural income. In some instances, authorities used satellite maps to spot misuse of the tax provision. There were also instances where undisclosed income was shown as agricultural income in tax returns - a move that was meant to not only avoid paying tax but also legitimise black money. Similarly, tax officials came across cases where related activities were shown as agriculture in a bid to avoid paying tax on income earned. Besides cases where there was no documentary evidence to show agricultural activity, officials have come across cases where there was a massive mismatch in income, often disproportionate to the size of land holdings. The tax department, which has been deploying tools to better analyse data as part of SAKSHAM, conducted the probe by taking up tax returns with high levels of farm income and matching some of them. Based on data for the 300-odd cases, it is nudging taxpayers to update or revise their returns to accurately reflect their income and pay tax accordingly. The data was based on tax returns filed for assessment year 2021-22 (FY2020-21) to assessment year 2023-24 (FY2022-23). Going forward, more tools are sought to be used to check such misuse of tax provisions. For instance, satellite images are being used to keep tabs on the kind of produce coming out of farms for which exemption is being claimed on the ground of agricultural income. While there is no move to tinker with the exemption available or go after small growers, the idea is to ensure that the big fish, claiming large exemptions, do not get away by making false claims.