India’s proposed Income-Tax Bill, 2025, aimed at overhauling the country’s six-decade-old direct tax regime, will preserve the existing exemption on agricultural income, including revenues from nurseries, according to clarifications issued by the Ministry of Finance and endorsed by a parliamentary review panel.
The 31-member Lok Sabha Select Committee, chaired by BJP lawmaker Baijayant Panda, tabled its report in Parliament, recommending 32 formal amendments and over 560 corrective suggestions to the 133-section draft Bill. While the legislation focuses on textual simplification and streamlining compliance, one of the most closely watched areas during its scrutiny was the treatment of agricultural income—a domain constitutionally reserved for state taxation.
Nursery Income Remains Agricultural: No Tax Change
At the centre of stakeholder concern was a proposed change in how nursery income is defined. Under the current Income-tax Act, 1961, Explanation 3 to Section 2(1A) explicitly classifies income from nursery operations as agricultural. The draft Bill seeks to replace this with a reworded sub-clause (2)(5)(d), which some experts warned could trigger fresh litigation by omitting specific language.
Stakeholders urged the committee to clarify that income from the sale of live plants, saplings, seedlings, and coco-pits should continue to be recognised as agricultural income, given their agrarian origin. The Ministry of Finance, in response, assured that there is no shift in policy and that the redrafted provision was intended as a linguistic update, not a legal departure.
“The Bill does not alter the fundamental principles governing agricultural income. As per the Constitution, such income remains outside the purview of central taxation,” the committee noted in its report, adding that the proposed clause “preserves the legal continuity” of the 1961 Act.
No Policy Shift, Only Structural Reform
Officials emphasised that the Income-Tax Bill, 2025, does not propose changes to tax rates or existing exemptions. “The objective is to simplify the law’s structure and make it more readable without affecting the core tax framework,” the Finance Ministry said.
The new Bill reduces the law’s overall size, eliminates over 90 redundant sections and sub-sections, and streamlines procedural frameworks like Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), cutting related provisions from 69 to 13 sections.
It also introduces the concept of a unified “tax year,” replacing the current distinction between “assessment year” and “previous year,” and consolidates scattered provisions on Non-Profit Organisations into a dedicated chapter.
Implications for Farmers and Agribusinesses
The reassurance on agricultural income treatment is expected to allay concerns among farmers, agri-entrepreneurs, and nursery operators, many of whom rely on the current exemption framework for financial planning. The sector contributes nearly 18% to India’s GDP and supports over half the country’s workforce.
Experts noted that while the Bill does not expand benefits to the farm sector, its commitment to preserving established tax principles brings legal clarity and could reduce disputes in revenue assessments.
“The government’s clarification is crucial. It preserves the integrity of agricultural exemptions while allowing tax reform to progress,” said a senior tax consultant advising agri-businesses.
The government is expected to introduce a revised version of the Income-Tax Bill, 2025, incorporating the panel’s recommendations, in the upcoming parliamentary session. Once enacted, the new law will replace the Income-tax Act, 1961, marking a generational shift in India’s direct tax administration.