Super rich taxpayers hoping for Achhe Dinn from this year's Budget are likely to be disappointed.
Last year's Budget had removed wealth tax but enhanced the surcharge on tax from 10% to 12% for those earning more than Rs 1 crore a year. This year, the Economic Survey has already hinted that the rich are not taxed enough and those with fat incomes should brace for a higher tax.
TAX UP, BUT MORE FOR SUPER RICH Taxing the rich is low-hanging fruit because such measures face little political opposition. The 10% surcharge on income of over Rs1 crore was introduced as a one-time measure in 2013.
In his Budget speech, P Chidambaram had stressed on this when he said, "I believe there is a little bit of the spirit of Mr Azim Premji in every affluent taxpayer. I am confident that when I ask the relatively prosperous to bear a small burden for one year, just one year, they will do so cheerfully."
Budget 2016: Super rich should brace for higher tax
That one-time measure has not only become a permanent feature but its rate has also been raised. It's not as if other segments of taxpayers have been spared. If you don't factor in the tax deductions available, the effective tax as a percentage of income has gone up in the past five years for almost all taxpayers. But the super rich have been the worst hit.
A taxpayer earning over Rs 1.2 crore a year pays almost a third of his income in tax. Just five years ago, in 2011-12, he was paying less than 30%. Today's income cannot be compared with what one earned five years ago. So incomes for previous years have been adjusted for inflation using the cost inflation index announced by the government every year.
The calculation does not take into account the tax deductions available to taxpayers. If deductions are factored in, the effective tax rate for those in the lower income brackets will fall to low single digits. In the past two Budgets, the government has doubled the limit for tax-saving deductions. The deduction under Sec 80C was raised from Rs1 lakh to Rs 1.5 lakh in 2014. Budget 2016: Super rich should brace for higher tax
Last year, an additional deduction of Rs 50,000 was introduced for contributions to the National Pension Scheme. However, we did not include deductions because the quantum of savings and eligibility can vary across individuals.