Budget 2019: Finance Minister Introduces Two New Super-Rich Tax Categories
Finance Minister Nirmala Sitharaman introduced a higher tax on those earning more than Rs 2 crore, urging India’s wealthy to make a larger contribution to the nation’s growth.
Effective this year, individuals with taxable income of between Rs 2 crore and Rs 5 crore must pay a surcharge of 25 percent, while those earning over Rs 5 crore will pay a surcharge of 37 percent.
Earlier, individuals with annual taxable income of over Rs 1 crore had to pay a surcharge of 15 percent.
The effective tax rate on people with a taxable income of Rs 2-5 crore will be 37.5 percent, and 41.1 percent on those with a taxable income of more than Rs 5 crore. Over and above that, a 4 percent cess will also be levied on this tax amount. So, the increase in the effective tax rate is 3 percent and 6.6 percent, respectively, for the two categories.
“The super-rich have been taxed royally in the Budget 2019,” Suresh Surana, founder of consulting firm RSM India, said in an emailed statement. “While this measure shall have a limited impact as the number of taxpayers having income above Rs 1 crore is appx. 140,000 as per the recent CBDT data, but their economic influence is much greater.”
Ameet Patel, partner, Manohar Chowdhry & Associates, said the government has made it more expensive to be a rich person in the country.
To understand the implications of the Budget proposals, here’s how it works:
- An individual earning a taxable income of Rs 2.5 crore would now have to pay tax of Rs 95 lakh compared with close to Rs 87.5 lakh last year.
- For an individual earning a Rs 5.5 crore, the amount of tax payable would increase to Rs 2.3 crore compared with Rs 1.9 crore last year.
The increase in the effective tax rate is perhaps a little steep, said Arvind Rao, founder of Arvind Rao & Associates. “They have gone from 15 percent to 25 percent surcharge, and 37 percent surcharge. They could have done this in a more gradual way.”