Why do rich people buy big farmhouses to save tax? Understand the whole ‘game’

Whenever we think of the luxurious life of a rich or influential person, a big picture comes in front of the eyes – away from the rushing of the city, a green, beautiful and luxurious farmhouse. We feel that this is just a place to spend their weekends or parties.

But have you ever thought that this farmhouse is not just for hobby or showing, but also a very ‘smart’ and legal way to save tax?

Yes, many rich people of India use farmhouses to reduce their taxable income. This is not an illegal work, but there are some ‘Luphols’ (paths) given in the law, which they cleverly benefit.

Let us understand this entire ‘sports’ in easy language today.

The biggest benefit is available by becoming a ‘farmer’

There is no tax on Agricultural Income from Agriculture in India. That is, if you earn money by farming and farming, then you do not have to pay even one rupee on that income as tax.

Now, rich people take advantage of this rule.

1. They become ‘paper farmers’: They buy a large farmhouse and show it as ‘agricultural land’ on paper. They grow some trees, vegetables or fruits there. Even though it earns them nominally, on the basis of this, they bring themselves under the category of ‘farmer’.
2. Black money makes ‘white’: The biggest game is here. They also show their second illegal or ‘black money’ earnings as ‘income from farming’.
   • Example: Suppose someone earned a black money of Rs 1 crore from another business. Now he will show in his income tax return that he has earned Rs 1 crore by selling vegetables or fruits grown in his farmhouse. Because there is no tax on agriculture income, then this 1 crore rupees becomes ‘white’ without paying any tax.

The government knows everything, but …

It is not that the government or tax department is unaware of this ‘sports’. They know that this rule is being misused on a large scale. But it is very difficult to control it completely, because:

• It is very difficult to prove whether the visible agricultural income is actually from agriculture or not.
• Agriculture is a very sensitive issue in India and imposing any kind of tax on it can create a big political controversy.

In clear terms, the farmhouse is not just a beautiful bungalow, but a ‘financial shield’ for the rich that legally helps them to save millions of crores of taxes.