OPINION I Economic Times

As India strides toward its vision of Vikshit Bharat (developed India), it must confront the realities of economic inequality, particularly in the agricultural sector, where disparities are deeply entrenched. Agriculture, employing nearly 50% of the population but contributing only 17% to the GDP, reflects a vast divide between smallholders with marginal incomes and a small group of wealthy farmers who control a substantial share of the sector’s wealth. To address this imbalance and drive India’s developmental goals, implementing a well-structured taxation policy for affluent farmers is essential. This would not only generate much-needed revenue but also promote greater economic equity.

Agricultural income in India has been exempt from taxation under Section 10(1) of the Income Tax Act, 1961. This provision was originally designed to shield small and marginal farmers from financial strain. However, the exemption has inadvertently allowed wealthy farmers to avoid paying taxes, even though they benefit disproportionately from public infrastructure, subsidies, and services compared to small-scale farmers. According to the ICE 360° survey, there are approximately 5 million affluent households classified as “wealthy farmers,” each earning over ?25 lakh annually, with two-thirds of their income coming from agriculture and the rest from non-farm activities. Though this group represents only 8% of the total farming population, they control 28% of the sector’s income. This stark inequality highlights the necessity for revisiting agricultural income exemptions and implementing a tax system that focuses on the wealthy while safeguarding the economically vulnerable majority of farmers.

Interestingly, about 45% of these wealthy farmers also manage to receive benefits from the PM-Kisan Nidhi Yojana, further emphasizing the concentration of wealth in agriculture. These farmers, mostly residing in top-developed rural districts clusters across six states—Andhra Pradesh, Punjab, Kerala, Haryana, Tamil Nadu, and Karnataka—have larger landholdings, access to modern technologies, and are better integrated into commercial agriculture. The disparity becomes even clearer when one considers that 67% of wealthy farmers own two-wheelers, 29% own cars, and only 28% own tractors, suggesting that their investments extend far beyond essential farming equipment.

Taxing wealthy farmers is not only an economic necessity but also a matter of fairness. The agricultural sector in India functions as a de facto tax shelter for affluent individuals, allowing them to accumulate wealth without contributing proportionally to public revenues. In its 2002 report, the Vijay Kelkar Task Force on direct taxes argued that exempting agricultural income violates both horizontal and vertical equity. Horizontal equity dictates that individuals with similar income levels should be taxed equally, while vertical equity requires those with higher financial capacity to pay more. By continuing to exempt wealthy farmers, India’s tax system places a disproportionate burden on other taxpayers, particularly salaried workers and non-agricultural business owners.

Taxing these affluent farmers could significantly boost the government’s revenue. According to the ICE 360° survey, taxing just the wealthiest 5% of farmers at a moderate rate of 30% could generate as much as ?30,000 crore annually. This substantial revenue could be directed towards rural infrastructure, agricultural innovation, and targeted subsidies for the small and marginal farmers who need financial support the most. In addition, the collection of accurate tax data on wealthy farmers would help the government better distinguish between small-scale farmers and affluent landowners, allowing for more effective and equitable subsidy distribution.

The reason wealthy farmers have remained outside the tax net for so long is largely due to the political influence of the agricultural community in India. Many state legislatures are populated by landowners who benefit directly from the agricultural income exemption, giving them a vested interest in maintaining the status quo. However, the narrative must shift to emphasize that only the wealthiest farmers will be targeted for taxation, leaving small and marginal farmers unaffected. This requires a redefinition of political priorities, ensuring that the majority of farmers, who often struggle to make ends meet, are not subjected to additional financial burdens.

One of the significant challenges in taxing wealthy farmers is the prevalence of cash transactions in agriculture, which makes it difficult to track incomes and enforce taxation. Many affluent farmers do not maintain formal records of their transactions, which are often conducted outside the banking system. This lack of transparency complicates efforts to assess income levels accurately and impose fair taxes. However, India’s push toward financial inclusion and the digitization of rural banking systems offers an opportunity to address these challenges. As more farmers adopt digital payments, it will become easier to track agricultural incomes and apply appropriate taxes.

India can learn valuable lessons from countries that have successfully implemented agricultural taxes without harming small-scale farmers. For example, in the United States, wealthy farmers are subject to a range of taxes, including federal and state income taxes, property taxes, and capital gains taxes. However, U.S. tax laws also provide deductions and credits that support agricultural businesses, ensuring that wealthy farmers contribute their fair share to public revenues without stifling agricultural investment. Similarly, countries like Australia and Canada have progressive tax systems where large commercial farming operations are taxed, while smaller farms receive reduced rates or exemptions based on income thresholds. India could adopt a similar model, ensuring that only farmers with substantial income or landholdings are taxed, leaving small farmers unaffected.

Implementing a tax on wealthy farmers will require careful planning, political will, and engagement with key stakeholders, including farmer associations, economists, and policymakers. By crafting a tax system that is both equitable and efficient, India can ensure that the agricultural sector contributes its fair share to national development without placing additional burdens on the most vulnerable. In conclusion, if India is serious about achieving its vision of Vikshit Bharat, it must take bold steps to address economic disparities in agriculture. Taxing the wealthiest farmers is not only a moral imperative but also a crucial policy measure for building a more equitable and prosperous future for all.