There is no rationale in exempting from tax the entire income from agriculture when 97 per cent of population was already not paying income tax, they said, adding direct tax mop up could be doubled only by bringing rich farmers, more professionals and self-employed under the tax-net.

"Presently, agriculture income is exempted from tax in India under section 10 (1) of the Income tax Act, 1961, consequently 70 per cent of the population that live off farming are not taxed.

This tax benefit should not be provided for rich farmers," CII said. The chamber said the challenge in this case will be the demarcated line for "rich" farmers, for which the government can set up a reasonably high bar after which the marginal tax rate will be made applicable to such farmers.

The bar could be gross income greater than Rs 10 lakh, CII said, demanding expansion of the tax net to more and more professionals and self-employed to double the direct tax net by March 2007.

"We favour imposition of tax on agricultural income from commercial crops," FICCI president Onkar Singh Kanwar said, adding the government may tax such income above Rs 5 lakh at a flat rate of 15 per cent to begin with.

Assocham President M K Sanghi said it is in complete agreement with Kelkar panel on bringing "rich" farmers under the tax net.

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PHDCCI said," We need to bring rich farmers and farm income under the income tax. However, the agricultural income tax is a state subject, which would require a national consensus as well as constitutional amendment before it is implemented."

However, credit rating agency ICRA had slightly different view from chambers. Its MD and CEO P K Chaudhury said there has to be enough application of mind before bringing agriculture income under the tax net.

"In fact, a few of the state governments had imposed Agriculture Income Tax in the past. That did not generate enough revenue to recover even the cost of managing the logistics," he said.

There is always a tendency to overstate the wealth of agriculturalists, Chaudhury said, adding most of the farmers live in absolute poverty and barring a few states, the enforcement of laws related to Agrilcultural Land Ceiling has made the rich farmers almost extinct.

He suggested "better option" to gradually reduce the subsidies. G Govinda Rao, National Institute of Public Finance and Policy Director said agricultural income tax is important to prevent evasion of non-agricultural income tax.

"Many businessmen are not declaring their incomes as agricultural income and are evading tax. Ways should be found to integrate the two," he said.

NCAER fellow Devendra Kumar Pant said agriculture income more than Rs 5,00,000 should be taxed to begin with at a rate lower than personal income tax.

However, the threshold should go down and tax rate should go up gradually, he added.