Journal Press India^®

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The principle of pith and substance continues to play a vital role in India’s federal structure, preserving states’ authority to exclusively tax agricultural income. This exemption, originally designed to shield small farmers, is maintained in the Income-Tax Bill, 2025, which still covers income derived from rent, cultivation, and agricultural produce. Yet, the provision has come under persistent criticism. Affluent individuals are exploiting it, distorting tax equity. The existing partial integration model does not resolve situations where entire incomes are reported as agricultural. Meanwhile, countries such as the United States and Canada demonstrate that universal income taxation, combined with targeted financial support for farmers, can enhance fairness. This paper proposes two main reforms: a constitutional amendment to shift high-value agricultural income—above ₹25–50 lakh annually into the Concurrent List, with proceeds earmarked for rural development; and a legal overhaul, supported by satellite monitoring and integrated land records, to clearly distinguish genuine farming from commercial or disguised non-agricultural activities.

Keywords

Agricultural exemption; Article 246; Pith and substance; Fiscal federalism; Tax reform

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