New Delhi: Will the partial demonetisation and consequent scrutiny of high value bank deposits bring the Indian farmer under the tax net?

Yes, if the farmer is making large cash deposits derived from non-farm sources but masked as farm income, the income tax department said.

But this could potentially trigger a political backlash against the Bharatiya Janata Party (BJP)-led National Democratic Alliance.

So far, successive governments have resisted any move to tax farmer’s income. But all this may be about to change.

The income tax department will scrutinize all high value cash deposits and cross check if it is in line with the land holdings of the farmer and the corresponding yields. In case there is a large discrepancy, the farmer will be asked to explain this difference.

“Since farmers’ genuine income is not taxable, the farmers should not worry at all in depositing the old currency notes in their account. However, the farmer’s income should not be disproportionately high compared to yield expected from the land owned by him," revenue secretary Hasmukh Adhia tweeted late on Wednesday night.

Earlier this week, the government scrapped existing Rs500 and Rs1,000 notes and asked the public to deposit these bills with banks and post offices by 30 December.

Explaining the scrutiny process, a senior income tax department official said, “We will get all information about deposits of more than Rs2.5 lakh. For large deposits by a farmer, we will ask him to explain the source. We will send them a letter in case of a discrepancy," said a senior official of the income tax department, who did not wish to be identified.

At present, if more than Rs10 lakh is deposited in a bank, the information is forwarded to the tax department. Thereafter, it scrutinizes tax returns of the individual and undertakes action as required.

To be sure, over the last few years, the tax department has been identifying tax evaders who pass off non-farm income as farm income. In a statement in the Rajya Sabha earlier this year, finance minister Arun Jaitley said the tax department is probing cases where tax evaders are trying to pass off income from other sources as farm income.

“There is no tax on agricultural income. A farmer does not need to worry if he is depositing genuine farm income in bank accounts," Jaitley said on Thursday.

A senior NDA leader aware of the development said, “There is no plan to start taxing farmers," before adding, “The government is very clear that farmers will not be taxed but they should not get involved in illegal activities."

The Congress is, however, looking to politicize the issue. “They are trying to introduce a back door entry for taxing agriculture income. Such a decision has never been taken before. It exposes their mindset because when farmers committed suicide, they did not bother and now they want to do this," said P L Punia, senior Rajya Sabha member and Congress spokesperson .

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