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Union Budget 2019: A Tax on the Super Rich

IndianMoney.com Research Team | Posted On Saturday, July 06,2019, 04:45 PM

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Union Budget 2019: A Tax on the Super Rich

 

 

The Finance Minister Nirmala Sitharaman made a big announcement in the Union Budget 2019. There’s a tax on the super-rich. If you are earning over Rs 5 Crore a Year, there’s cause for concern. India’s super-rich peak tax rate is 42.7%. This is higher than the US which stands at 40%.

What Happens If You Earn More Than Rs 5 Crore?

People earning more than Rs 5 Crore a year will have to pay a surcharge of 37% on their tax. This is over and above the 30% marginal tax rate. This works out to be an effective tax rate of 41.1%.

How is this so? This is a 30% tax on every Rs 100 you (a super-rich) man earns plus another 37% on Rs 30 which works out to be Rs 11.1. (Rs [email protected]% + 37% of Rs 30 = Rs 41.1). The total tax a super-rich man earning Rs 5 Crore a year pays is 41.1%. Now, add the various cess and you get a figure of  42.74%.

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Union Budget 2019: A Tax On the Super Rich

The Finance Minister Nirmala Sitharaman has increased the 15% personal tax surcharge on the top-end income brackets. The personal tax surcharge is 25% on those who earn an income between Rs 2 Crore and Rs 5 Crore. For income above Rs 5 Crore, the surcharge is 37%.

For those earning between Rs 2 Crores and Rs 5 Crores, the highest applicable tax rate is 39%. If you are earning more than Rs 5 Crore, the highest applicable tax rate is 42.74%. This is the highest tax rate since 1992.

See Also: Union Budget 2019

Will Super-Rich Tax Be a Burden?

The extra tax outgo isn’t small in absolute terms. If you are earning Rs 25 Lakhs a month (Rs 3 Crore a Year), you land up paying around Rs 76,375 more tax a month. If you earn Rs 50 Lakhs a month, you land up paying around Rs 3.4 Lakh extra in taxes each month. This is a pinch the super-rich will definitely feel.

Take a look at Robin Hood Tax:

Income Slab (Rs)

 Existing Surcharge

After Budget

Max marginal Tax Rate

50 Lakhs - Rs 1 Crore

10%

10%

34.20%

Rs 1 Crore - Rs 2 Crore

15%

15%

35.88%

Rs 2 Crore - Rs 5 Crore

15%

25%

39%

Above Rs 5 Crore

15%

37%

42.74%

See Also: Union Budget 2019: Will Government Introduce Inheritance Tax?

Looks a lot in tax, but does it really hurt the super-rich? Income Tax Data shows 46.6 Million IT Returns filed in 2016-17. Out of this, a mere 0.16% showed gross income between Rs 1 Crore to Rs 5 Crore. Many of these taxpayers would definitely earn less than Rs 2 Crores. The new rates will not affect the super-rich too much. Looks like many of the super-rich will slip through the tax net.

How the Super-Rich Escape Tax?

The Finance Minister Nirmala Sitharaman has introduced a tax on the super-rich. The intentions are good. The rich and the wealthy must contribute to the growth of the Nation. Sadly, many of the rich might flee abroad to escape the tax. A better idea would be to increase the indirect tax revenues.

Is Super-Rich Tax Fair?

A maximum marginal tax rate of 42.74% looks a bit too much. However, this is comparable with taxes on the super-rich in Germany, UK and Japan. Keeping the current rupee-dollar exchange rate in month, there’s a 45% tax rate on income of Rs 2.04 Crore in Germany and Rs 2.53 Crore in Japan.

See Also: Things To Expect From The Union Budget 2019

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