TAX COLLECTION AT SOURCE (TCS) TO BRING FARMERS IN TAX NET

[C.A. DEV KUMAR KOTHARI]

Rich farmers need to be within tax net:

Farmers are having agricultural income which is tax free under income-tax Act 1961 and can be taxed only by State Governments. However, in most of states there is no agricultural income. Over a period of time farmers - particularly big and medium size farm holders accumulate capital and start earning other income by way of interest, rent, capital gains etc. which are taxable. Many such farmers do not file return of income considering that they are not liable to pay tax as they are principally farmers hence exempt from tax.

Though there are provisions for inclusion of agricultural income in other income for tax rate purpose, however, this is implemented by people who have major income other than agricultural income and are not principally farmers by way of their major activity. The people who are principally agriculturist and have major income from agriculture do not consider and file return under Income Tax Act.

Suggestions:

Farmers sell their agricultural produce to traders directly or through commission agents (Adhatias). Therefore, we can have focus on traders and commission agents, in rural and urban areas who purchase agricultural produce from farmers. By imposing requirement for TCS from the farmers who sell agricultural produce a data base can be created and farmers can be monitored. Collection of some tax by way of TCS can be considered as final in case the person do not come forward by filing return of income.

Tax collection at source (TCS):

A TCS at rate varying from 0.2% to 0.5% (that is Rs. Two hundred to five hundred per  Rs. One lakh) of purchase value of agricultural produce from farmers by any trader or commission agent from farmers can be made mandatory. The rate need to be progressive because more the value of agricultural produce sold by farmer there are more chances of higher other taxable income.

 Suppose a farmer sells agricultural produce of Rs.25 lakh and his TCS is say Rs. 10000/- at applicable rates from various buyers say at average rate of 0.4%.  This TCS can be adjusted against his tax liability and he can pay excess tax, if any or can claim refund if his tax liability is less than Rs.10000/-.

The farmer will file return of income to disclose his taxable income as well as agricultural income (for rate purposes). And pay further tax or claim refund as the circumstances may be. Once a return is filed, the AO will be in position to examine records and disclosures made for agricultural income and other income.

There should be exemption up to purchase of Rs. One lakh of purchases by any trader or commission agent from any farmer to reduce unnecessary administrative work in case of small farmers.

In case a farmer has PAN the rate of TCS can be flat and lower @ say 0.20 % that is Rs.200 on purchases of Rs one lakh. 

PAN for famers:

Obtaining PAN can be made compulsory for farmers having:

Plot of land of size above specified size. Different size can be prescribed for irrigated and non irrigated area and also in different zones based on productivity of land in areas.

Irrigation equipment above specified size.

Tractor.

Trcuk.

Jeeps or other multiutility vehicles.

Motor car.

One or more house property having say more than three thousand sq. feet area in aggregate.

TCS will improve tax payers data base:

TCS will improve the data base about farmers. On selective and rotational basis some enquiries can be made to find potentiality of further tax collection and chances of tax evasion.

Other data base:

Data base for owners of large plots of agricultural lands need to be updated and broad based. Based on land holding, enquiry about other income earned by farmers can also be made.

Readers are requested to send their suggestions on this issue.