The basis for a sharp surge reported by tax assessing officers in the number of cases with Rs 1 crore-plus agricultural income over the last nine years, something that led to a pointed suggestion by tax officers on partially taxing farm income, has been traced to ‘data entry errors’ that erroneously extrapolated farmer incomes over 300 times the actual.
This was detected after 2,517 cases from a list of 2,746, involving agricultural income above Rs 1 crore reported in Income Tax returns for the period spanning assessment years 2007-08 and 2015-16, were subjected to verification by field authorities.
Of these, it was found that in 838 cases where verification was completed by late 2016, the corrected agriculture income, after verification and confirmation by assessing officers, actually totalled Rs 1,395 crore as against an agriculture income of Rs 4,31,617 crore entered by assessing officers or taxpayers in I-T returns. Another 324 cases showed data entry errors in agriculture income or misclassification of income.
In June last year, at the Rajasva Gyan Sangam, two-day conference of tax administrators, a pointed suggestion was made by tax officers to the Prime MInister on the need to target farmers with non-agricultural income above a certain threshold, an idea that was pitched as a low-hanging fruit that could potentially bolster ongoing efforts to widen the country’s taxpayer base.
Subsequently, though, the Income Tax department, in a response submitted to the Standing Committee on Finance, admitted to huge agriculture incomes in ITRs primarily on account of data entry errors. This comes after attempts to verify the genuineness of the agricultural income reported by the taxpayers for the period AY 2007-08 to AY 2015-16, wherein a total of 2,517 unique PAN-AY cases were subjected to verification by field authorities.
Verification in 838 cases were completed subsequently. Based on replies received from field authorities, the discrepancy between figures of agriculture income as per ITRs vis-a-vis figures reported by assessing officers can be categorised under two broad heads — those involving data entry errors committed largely while punching data related to agricultural income in the system, and misclassification of income in a few cases where the taxpayer wrongly claimed certain income as agriculture income and claimed exemption.
These apart, there were some cases where non-genuine income was shown as agriculture income, while in a handful of cases, it was seen that there was no variation in the agriculture income reported by the taxpayer in the return of income and the income confirmed by the assessing officer.
The summary of the analysis based on reports from field authorities received until May 24, 2016, out of the 838 cases where verification was completed, the corrected agriculture income totalled Rs 1,394.95 crore as against the agriculture income of Rs 4,31,617.39 crore entered by the assessing officers or taxpayers in the return of income in these cases.
A tax department official said that during the review of the data entries, it was found that a taxpayer from Jharkhand, who was exempt under the agricultural category, had overstated his overall income. The entry was treated as an outlier and removed from the revised compilation of agricultural income assessees.
Another official said that wherever a discrepancy had been noticed by the assessing officer, corrective measures like rectification order under Section 154 of the Income Tax Act were being passed and in some cases, assessing officers had reported that reopening of assessment was under consideration or had already been reopened by issuing notice under Section 148.
The Central Board of Direct Taxes (CBDT) had been looking closely at agricultural income claims of over Rs 1 crore by assessees in their tax returns in view of a public interest litigation (PIL) filed by a retired Income Tax official last year in the Patna High Court, which had raised concerns about agricultural income being used as the route for unaccounted money.
A tax department official involved in the legislative exercise said the department had admitted to data entry errors in court in line with the response to the Standing Committee on Finance. The official did not give further details since the case remained sub-judice.
There are about 25 crore taxpaying households in India, of which 15 crore households are designated as agriculturalists and the remaining 10 crore are non-agriculturalists, according to estimates produced at the Rajasva Gyan Sangam last year.
At present, agricultural income is used just for the determination of the tax rate while computing tax liability for an individual if the net agricultural income exceeds Rs 5,000 and total income, excluding net agricultural income, exceeds Rs 2.5 lakh in a year. The tax on agricultural income is, however, later deducted from the total tax to be paid by the individual as agricultural income is exempt from tax.
Any decision to tax agricultural income by the Centre will require an amendment to the Constitution.