Q.Why is agricultural income generally exempt from Central income tax in India, even though it is unquestionably 'income' in the ordinary sense of the word?

The exemption traces back to how taxing powers are divided between the Union and the States, not to any special economic reasoning.

The Constitution of India divides legislative powers, including taxing powers, between the Union (Parliament) and the States through three lists in the Seventh Schedule. Entry 46 of List II (the State List) specifically assigns the power to levy "taxes on agricultural income" to State legislatures. Because this power belongs exclusively to the States, Parliament has no constitutional competence to include agricultural income within the Central Income Tax Act's tax base at all — this is why Section 10(1) of the Income Tax Act, 1961 exempts agricultural income from Central income tax, not as a policy concession that could be withdrawn by a Finance Act, but as a reflection of a fixed constitutional boundary on Parliament's own taxing power. (Some States have, from time to time, exercised their own Entry-46 power to levy a State-level agricultural income tax — a separate levy …

Explaining the exemption as a policy choice to 'support farmers' rather than a constitutional division of taxing power — while supporting agriculture may be a policy motivation behind the constitutional scheme, the legally precise reason the Income Tax Act ca …