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Why black money hoarders are scrambling to befriend the humble farmer

17 November, 2016

The government’s decision to scrap old Rs 500 and Rs 1,000 notes has meant that those with large stashes of untaxed cash have had to scramble to turn their black money to white. 

People have been trying innovative ways of parking their cash from gold bought at a hefty premium to paying ‘commissions’ to get someone to launder their money, but the government says that it is monitoring all such transactions.

However, there is at least one loophole the government could find extremely hard to fix. Here’s all that you may want to know about why agriculture could dent Prime Minister Narendra Modi’s crusade against black money.

How exactly is agricultural income taxed in India?

Agricultural income is tax free in India. Simply put, there is no direct tax on any income you generate out of your agricultural activities. Although this has been done keeping in mind interests of small farmers, large claims of agricultural income have reportedly been under the taxman’s lens. However, your income from sources other than agriculture is liable to be taxed as per applicable slabs.

Although there is no concrete proposal to this effect yet, a report in The Indian Express in July said the IT department now wants the government to begin taxing agricultural income, at least partially, for those that have regular income in addition to agricultural income.  

In fact, as an analysis published on 14 November by news website Firstpost shows, India has at least 8 lakh extremely wealthy ‘farmers’ who, during 2011 and 2012 declared more than Rs 874 lakh crore as income, with their average income ranging between Rs 30 crore and Rs 80 crore per annum. There is a good chance that income from other sources is being passed off as agricultural income just to avoid tax.

Does this make farmers an easy target for laundering money?

In theory, yes. Since there is no tax, a farmer can report higher than normal income, and get away. This way, for a commission, an unscrupulous farmer can become a conduit for laundering money, or if he has other sources of income that generate unaccounted wealth, he can launder his own money.

But is there nothing the government can do about it?

The government could always look at yields per acre and compare them to reported income. But this can effectively be done only in a few cases, where they notice an unusual spike. There is a good chance, therefore, that a vast number of such people could get away. 

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Why black money hoarders are scrambling to befriend the humble farmer

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