Advance tax payments by prominent high networth individuals (HNIs)who figured among the top 10 taxpayers in Mumbairose 32.5% from a year ago in the December quarter, according to data provided by the income-tax (I-T) department, suggesting that the rich are waiting for clarity before reinvesting their money in a slowing economy.
The increase came even as the advance tax paid by companies in Mumbai remained flat in the quarter compared with the year-ago period. Mint had earlier reported that the advance tax paid by around 65 companies in Mumbai in the December quarter rose only 0.13% compared with the same period last year.
However, there is no correlation between the advance tax numbers of HNIs and the performance of their companies.
According to the norms laid down by the Income-Tax Act, non-corporate assessees are required to pay 30% of their total advance tax in the second quarter, followed by 30% and 40% in the next two quarters, respectively, on their projected earnings.
Thus, by the December quarter, non-corporate taxpayers would have paid 60% of advance tax.
Anand Mahindra, vice-chairman of the Mahindra Group, paid Rs.6 crore advance tax in the December quarter, compared with Rs.3 crore in the corresponding quarter of last year. Actor Akshay Kumar also paid Rs.6 crore for the December quarter. He paid an identical amount in the year-ago quarter.
Zia Mody, senior partner at law firm AZB and Partners, paid Rs.2.3 crore against Rs.2 crore.
Ratan Tata, chairman of the Tata group, paid Rs.1crore in the quarter; he did not pay advance tax in the year-ago period. Cricketer Sachin Tendulkar paid Rs.2 crore compared with Rs.1.7 crore in the corresponding quarter of last year. Fali S. Nariman, a former additional solicitor general of India and senior Supreme Court advocate, paid Rs.2 crore against Rs.1.5 crore.
Among other prominent HNIs, Uday Kotak, founder of Kotak Mahindra Bank Ltd, paid Rs.80 lakh against Rs.40 lakh a year earlier.
Construction and real estate tycoon Niranjan Hiranandani, co-founder and managing director of the Hiranandani group, paid Rs.1crore. He paid an identical amount in the year-ago quarter.
Pallonji Shapoorji Mistry, another construction tycoon, paid an advance tax of Rs.30 lakh compared with Rs.20 lakh a year earlier. Janak Dwarkadas, a senior Bombay high court lawyer, paid Rs.2.2crore against Rs.2crore in the corresponding quarter last year.
The government is targeting Rs.5.85 trillion from direct taxes, comprising corporate and personal income tax, in the current fiscal year.
According to the Central Board of Direct Taxes (CBDT), as on 17 December, the direct tax collection touched Rs.3.16 trilliondown 18.5% from Rs.3.88 trillion in the same period last yearamid a shortfall in tax collections on account of slowing economic growth.
In an interview to PTI last week, CBDT chairman M.C. Joshi, said that tax authorities will focus on bigger assessees and salaried employees to mop up the revenue to achieve the direct tax budget target of Rs.5.32 trillion.
Collections from corporate and non-corporate segments in the third quarter are up by 10% and 20%, respectively, Joshi said.
Rakesh Rawal, chief executive officer, wealth management, Anand Rathi Financial Services, said these HNIs would have derived money by selling properties or earning high salaries.
V.K. Unni, who teaches public policy at the Indian Institute of Management, Calcutta, said HNIs were not reinvesting their money in capital formation as economic growth is slowing on the back of high inflation and high interest rates.
One of the reasons for HNIs paying more could be that their companies are not keen on diversifying or expanding into new areas considering risky external conditions. Even the corporates are not reinvesting their cash balances citing the uncertainty in the market. HNIs are waiting for clarity on where is the market headed, Unni added.
India has one of the fastest growing HNI segments in the world, currently contributing approximately 1.2% to global HNI wealth, according to India Wealth Report 2011 by Karvy Stock Broking Ltd released earlier in December.
The HNI population in India rose by around 20.8% in 2010, and its wealth is estimated to have grown by more than 11% to $530 billion, the report added.