NITI Aayog tells Centre to review tax exemption on farm income

The Central Goods and Services Tax Act has changed the definition of 'agriculturists'

The National Institution for Transforming India (NITI) Aayog has recommended a review of the tax exemption on agriculture income. 

In its three-year action agenda, circulated among chief ministers on Sunday, the Aayog said this was necessary as the blanket relief was being misused by non-agricultural entities to generate black money.

Officials in the know said the exemption was meant to protect farmers but many non-farmers were declaring agriculture as their source of income to evade taxes. “This loophole needs to be plugged,” the Aayog said. 

The agenda is a road map, starting from FY18, for the government.

This is not the first instance of scrutiny on those claiming to be farmers. The Central Goods and Services Tax Act, passed by Parliament recently, has changed the definition of “agriculturists”. Absentee landlords have been brought under the ambit of the GST.

The Aayog, in its action agenda, also favoured maintaining the current income tax exemption limit for individuals at Rs 2.5 lakh per annum. But, it wanted expansion of the lowest tax rate. This would ensure the tax liability of individuals with lower income does not increase suddenly.

Tweaks in taxation will, it said, enable India’s gross tax revenues to grow from Rs 17.03 lakh crore in 2016-17 to Rs 19.5 lakh crore in 2017-18, to Rs 22.1 lakh crore in 2018-19, and Rs 25.8 lakh crore in 2019-20. This is also the terminal year of the action agenda.

To account for upside and downside risks to the economy, the Aayog has considered three potential scenarios for nominal gross value added in the next three years. These, according to officials, are high growth, baseline growth and low growth. 

High growth ranges from 13 per cent in 2017-18 to 15 per cent in 2019-20; baseline growth estimates range from 11.6 per cent in 2017-18 to 13 per cent in 2019-20. Low growth projections ranges from 10 per cent in 2017-18 to 11 per cent in 2019-20. In all three scenarios, the fiscal deficit as a percentage of gross domestic product (GDP) is projected to drop from 3.2 per cent in 2017-18 to 3 per cent in 2019-20.

The action agenda also said all remaining exemptions to corporate tax need to be withdrawn in the next three years, while the overall corporate tax rate should be gradually lowered from 34 per cent to 25 per cent, in line with the finance ministry’s stated road map. 

On curbing black money, the Aayog, apart from advocating more structural changes to reduce the flow of black money, also advised the Centre to check corruption among tax officials. 

“Without instilling honesty among tax officials… we cannot curb the generation of black money,” the Aayog said. 

On governance, the Aayog is in favour of a longer tenure for secretaries and outsourcing of service delivery wherever possible, including police.

In agriculture, officials said the Aayog favours the use of genetically modified seeds discovered by domestic institutions and companies. It also wanted reworking of the PM’s Crop Insurance Scheme and easing of labour laws to boost manufacturing.

Simultaneous polls in Centre, states proposed
 

The NITI Aayog has advised simultaneous polls for Parliament and all state Assemblies, starting 2024 general election. The think tank of the Centre said this should be done in two phases, so that some state Assemblies would be curtailed only once.
 

A task force of stakeholders and political parties should be formed to draft relevant laws and a workable framework, it said. Prime Minister Narendra Modi, in his address to the Aayog’s governing council on Sunday, said discussions on simultaneous elections had begun.