A small, wealthy minority controls a disproportionate share of farm income, while the political narrative continues to be framed as if all farmers need to be tax-exempted
Advances in digital infrastructure have made targeted and technology-driven taxation feasible, with political will now the primary obstacle rather than administrative capacity
Allowing tax exemptions to persist despite rising inequality risks deepening social discontent and undermining the legitimacy of India’s growth model
Farm Income Tax Exemption Is Financially and Socially Unfair: PRICE’s Rajesh Shukla
Economist Rajesh Shukla, in an interview, says taxing high-income farmers is as much about fairness as it is about plugging revenue gaps
Farm income is tax-exempt in India
Summary
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The argument that taxing agricultural income would generate only marginal revenue and entail prohibitive administrative costs overlooks both the scale of revenue leakages in India’s tax system and the principle of tax fairness, according to Rajesh Shukla, managing director and chief executive of People Research on India’s Consumer Economy (PRICE), an independent think tank.
Under the Constitution, the taxation of farm income currently falls within the states’ jurisdiction.
In an earlier interview with Outlook Business, S Mahendra Dev, chairman of the Economic Advisory Council to the Prime Minister, argued that taxing farm income would not be beneficial for the Indian economy. He pointed out that nearly 86% of farmers in India are small and marginal, and that the government’s tax revenue would rise only marginally from taxing agriculture, while the administrative costs could outweigh the revenue generated.
"That reasoning focuses too narrowly on revenue and ignores the principle of fairness," says Shukla, in an interview. "When an income category, particularly one concentrated among the top 5–10% of earners, remains entirely outside the tax net, it distorts incentives and perceptions."
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An economist and researcher, Shukla adds that the agricultural income exemption is also exploited as a tax shelter, enabling high-income individuals to misreport earnings. With rapid advances in technology, he argues that political will, rather than administrative capacity, is the primary barrier to the reform. Edited Excerpts:
Given the majority share of poor farmers in India, is opposition to taxing farm income driven less by concern for small farmers and more by the political influence of affluent landowners shaping the narrative?
Yes, and the data increasingly bears that out. Our research on Annadata households shows that while a vast majority of cultivator families earn modest or even subsistence-level incomes, a small fraction controls a disproportionately large share of agricultural surplus. The top decile of farm households commands close to 40% of total agricultural income, while the bottom half accounts for less than 15%.
Yet, the political narrative continues to be shaped by those at the upper end of this distribution. In this case, what India needs is a differentiated approach, protecting smallholders while ensuring that those with substantial agricultural earnings contribute their fair share.
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Some economists argue that taxing agricultural income would bring limited revenue and high administrative costs. How persuasive is that argument in your view?
That reasoning focuses too narrowly on revenue and ignores the principle of fairness. When an income category, particularly one concentrated among the top 5–10% of earners, remains entirely outside the tax net, it distorts incentives and perceptions. The aim is not just simply to raise money, but to uphold the integrity of the tax system.
Our household-level evidence shows that farm income inequality today mirrors the wider income gap in the non-farm sector. Even modest taxation of the top agricultural earners would help close this credibility gap, demonstrating that India’s tax system treats all forms of income equitably.
Also, isn’t there a substantial revenue leakage due to the misuse of agricultural income as a tax-evasion route?
Yes, the issue is as much about integrity as it is about revenue. The agricultural exemption has occasionally been exploited as a tax shelter, allowing high-income individuals to misreport earnings. Meanwhile, the real Annadatas — small cultivators whose annual household incomes are typically below ₹1.5–2 lakh — gain little from such blanket exemptions.
Targeted taxation at the upper end, supported by data verification and income consistency checks, would close a visible loophole without burdening genuine farmers. Fiscal fairness is also social fairness, and plugging leakages is part of strengthening the trust between the state and its citizens.
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In that case, should the debate move away from implementation hurdles toward how technology and digitisation can make taxing farm income feasible?
Absolutely. The digital infrastructure India has built, from land record digitisation to satellite-based crop mapping and Aadhaar-linked financial data, has transformed feasibility. In our study, we show that farm-level data is now granular enough to estimate income distributions by region and holding size with reasonable accuracy.
That same infrastructure can help design a tiered and technology-driven reporting system, automatically exempting smallholders while flagging large and atypical declarations. The cost of administration is falling rapidly; the real challenge is no longer technical, but institutional and political.
How central is political will to this debate?
Political will remains the central barrier. Both high-income farmers and wealthy non-agricultural elites exert significant influence. One through votes, the other through finance. Yet, the costs of avoidance are collective. They fall on public services, rural infrastructure, and human capital investments that India desperately needs.
A gradual and transparent approach is the way forward. Begin with disclosure and reporting norms for large agricultural incomes, link part of the revenue to rural investment, and communicate clearly how fairness strengthens growth. Reform becomes possible when citizens see that contribution leads to visible improvement.
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What are the risks of letting inequality deepen because governments shy away from hard choices like taxing the wealthy or high-income farmers?
The danger is real and visible. Our data shows that rural income inequality has widened sharply. The Gini coefficient for total household income in the Annadata sample exceeds 0.45, approaching levels seen in urban India. If such disparities persist, the social fabric that underpins India’s growth could fray.
Economic dynamism must rest on inclusion; otherwise, growth loses legitimacy. A Viksit Bharat cannot be built on uneven foundations. There is no choice between fairness and growth. Fairness sustains growth. It ensures that prosperity feels shared rather than concentrated.
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