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Tax scythe looms over Rs10 lakh+paycheques

Sunday, 13 January 2013 - 11:00am IST | Place: New Delhi | Agency: dna
Employees earning more than Rs10 lakh a year, get ready to pay more tax. The finance ministry is likely to increase the tax rate in the salary slab over Rs10 lakh per annum to 35-40% from 30% now.

Employees earning more than Rs10 lakh a year, get ready to pay more tax. The finance ministry is likely to increase the tax rate in the salary slab over Rs10 lakh per annum to 35-40% from 30% now.

A bigger hit awaits those earning more than Rs20 lakh a year. The ministry is considering a new income tax slab for this segment — accordingly, income above Rs20 lakh is to be charged tax at 50%.

Would that hurt? Let’s see.
Say you earn Rs25 lakh a year. At current I-T slabs (excluding deductions, cess and surcharge), the tax payable works out to Rs5.8 lakh. At the new slabs (35-40% on income between Rs10 lakh and Rs20 lakh, and 50% on income above Rs20 lakh), you will end up paying Rs1.5-2 lakh more in taxes.

And there’s more bad news on the way. The ministry is also toying with the idea of an inheritance tax, said a source privy to the deliberations. Though finance ministry officials remain tight-lipped, the source said the ministry is indeed examining higher tax rates for higher income groups. “The ministry is also considering imposition of new taxes such as inheritance tax and is likely to roll out measures for early redressal of tax disputes.” On the exact quantum of the hike, however, there has been no consensus yet, said the source.

To be sure, the government is under pressure on the fiscal front on account of a burgeoning fiscal deficit, made worse by subsidies. The Planning Commission has already communicated a mere 5% increase in the gross budgetary support to finance ministry for centrally sponsored schemes.

Plans to raise Rs30,000 crore through divestment of stake in public sector enterprises this fiscal have had to bite the dust as approvals for only Rs7,000 crore have come in so far. Revenue receipts, which consist of net tax revenue and non-tax revenue, too, tell a sorry tale. As against an estimated Rs935,685 crore for 2012-13, up 23.7% over provisional actuals of 2011-12, revenue receipts during the first half were just Rs 350,888 crore. That works out to 37.5% of the amount estimated for the full fiscal, way below the average of 43.6% of the respective estimates in the past five years.

In such a situation, the proposal to tax the rich some more – similar to what Barack Obama is pushing in the US – sure appears a handy tool the government could use to set the house in order ahead of the polls next year.

But the ministry might need to iron out some glitches before the Budget, suggest experts.
“Even if the government plans to come out with such a move, there has to be clarity on the definition of ‘rich’. It is the super-rich class that sometimes gets away without contributing to the country’s development needs. So, if there has to be an increase in the tax rate, the government has to also calibrate the slabs in a manner that higher rates are applicable to genuine high earners,” said Sonu Iyer, tax partner, Ernst & Young.

Some rationalisation in the sectors not taxed may also be necessary. “For example, agriculture sector is exempt from taxation. But within the sector, one would find super rich category, which should be brought under the net,” said Iyer.

 




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