FinMin rules out tax on farm income

NEW DELHI: The Finance Ministry has virtually ruled out bringing farm income under tax net, even though it is among 162 Income Tax exemptions on which comments from the public are invited for their withdrawal.

"Tax exemption to agriculture income cannot go unless states and Union government agree for constitutional change," Revenue Secretary K M Chandrasekhar said.

He said tax on agriculture income currently comes under the State List. It can be levied by the Centre only after Constitutional amendment, which is a difficult task considering consensus would have to be there among political parties.

The other option as suggested by the Kelkar Committee in its report in 2002 is that a tax rental arrangement be designed, whereby states should pass a resolution under Article 252 of the Consitution, authorising the Central Government to impose tax on agriculture income with the taxes collected by the Centre assigned to states, he said.

"But that (suggestion) was also unlikely in the present situation," the Revenue Secretary said.

Asked then why public comments were sought on withdrawing tax exemption on farm income, he said all Income Tax exemptions were listed to ensure no distinction was made among them.

About other exemptions listed, he said Union Government has the power to levy taxes on these incomes, indicating that the department is quite open on all these Income Tax sops.

The Finance Ministry has sought public comments on 162 I.T exemptions, 54 in excise duty and 21 in customs duty that cost the exchequer Rs 1,58,000 crore in 2004-05.

He clarified that the department has not made up its mind on how many of these exemptions would go. "It would depend on responses for which last date is yet to be over," he added.

Chandrasekhar said the estimated loss to exchequer because of exemptions for 2005-06 was yet to be arrived at.
The Revenue Department has received an enthusiastic response on phasing out of Income Tax exemptions. "We are in the process of examining the responses," he said.

The revenue secretary said the response to the proposal to phase out excise and customs exemptions has also been good.
"Representations from about 30 associations, business houses have been received in about five weeks" since posting details of the proposals on the departmental website, he said.

The Government has proposed to withdraw customs duty exemptions on items, including imports of cameras and personal computers up to Rs one lakh by accredited journalists and excise duty exemptions on items like tooth powder, pressure cooker and recorded video casettes.

Besides agriculture, the list of exemptions on which Income Tax exemptions are sought to be removed include housing loans, contributions to provident fund, pension and VRS package.

On the controversial draft CBDT instructions to distinguish between trader and investor in shares, Chandrasekhar said the instrucitons are not aimed at any particular group or class of persons.

These instructions had earlier been interpreted by some experts as aimed at bringing foreign institutional investors into higher tax net.

The Revenue Secretary said upon request from various quarters, the department has extended the date by which comments may be sent on these instructions from May 25 to June 15. "The feedback received will be taken into account while fianilisng these instructions," he said.