Tax shadows: How taxation laws deepen regulatory invisibility and vulnerability of Indian agricultural labourers

India’s agriculture sector still employs a huge share of the workforce, yet the landless agricultural labourers, who number around 144 million and form nearly 55 per cent of the total agricultural workforce, continue to remain almost invisible in the country’s tax and regulatory systems. This paper examines how taxation laws, particularly the constitutional exemption of agricultural income under Article 265 and Section 10(1) of the Income Tax Act, 1961, together with the design of GST 2.0 and the new Labour Codes implemented in November 2025, have unintentionally deepened the regulatory invisibility and economic vulnerability of casual and migrant farm workers. While these provisions were meant to protect cultivators and modernise farming, they have left daily-wage labourers outside formal records, social security nets and welfare schemes. The rapid digital push through GST networks, Aadhaar linkage and the e-Shram portal has brought formal supply chains into the light but pushed these workers further into the shadows. GST 2.0’s decision to fix a 5 per cent merit rate on tractors, farm machinery, drip irrigation systems and key fertiliser inputs has certainly lowered costs for farmers and sped up mechanisation. However, it has also reduced the demand for manual labour by as much as 56 per cent in key operations such as harvesting and threshing, while agriculture-specific exemptions in the Labour Codes for small establishments employing five or fewer workers have given little incentive for formal wage reporting.

The situation becomes even more serious when combined with erratic monsoons, prolonged dry spells and climate-induced farm distress that regularly trigger wage loss, indebtedness and large-scale distress migration. Without any verifiable income trail, these labourers are denied access to provident fund, ESI, crop insurance or targeted relief measures. Drawing useful lessons from abroad, the paper looks at Brazil’s fully digital CTPS and e-Social system, which link registration directly to portable social security benefits, and China’s 2025 Rural Collective Economic Organisations Law, which uses fiscal incentives to ensure transparent labour records without burdening small farmers. The study suggests practical, low-compliance reforms such as a simple digital employer declaration on the e-Shram portal, tax credits and incentives for formal wage payments, and a modest agriculture-specific social security cess drawn from GST revenue forgone. These steps would create verifiable income records, offer climate-resilient protection and fully align with the goal of Viksit Bharat @2047.

In short, by turning tax shadows into policy sunlight through targeted tax-labour integration, India can build stronger rural labour markets, reduce exploitation and ensure truly inclusive agrarian growth.

Keywords: Landless agricultural labourers, Regulatory invisibility, Taxation exemptions, GST 2.0, Labour Codes