The good news is the finance minister did not introduce a new category of tax slab for the super rich. But, he has announced a surcharge of 10 per cent on those earning Rs 1 crore and above.
Presenting the Union Budget 2013-14 to the Lower House of Parliament, Finance Minister P Chidambaram asked, "When I need to raise resources, who can I go to except those who are relatively well placed in society? There are 42,800 persons who admitted to a taxable income exceeding Rs 1 crore a year. I propose to impose a surcharge of 10 per cent on those persons."
Tax experts say this will work out to around three-four per cent of additional tax for those earning Rs 1 crore or more, which might not be significantly high for such individuals.
"The finance minister has given in to the public demand for taxing the super-rich. This norm will mean an additional burden of Rs 3-4 lakh on the Rs 1-crore income level," says Amarpal Chadha, partner-tax and regulatory services, Ernst & Young. This surcharge is applicable only for financial year 2013-14, as of now.
Though the finance minister has urged taxpayers in the Rs 1 -crore-and-above income bracket to take inspiration from Azim Premji, experts say those on the borderline could try to lower their incomes to avoid extra tax. "There could be a tendency of lowering the income, diverting or deferring it, as this norm is applicable only for the next financial year," said K H Viswanathan, director, RSM Astute Consulting International.
Experts do not see many compliance issues propping up. How much can one earning Rs 5 crore or more lower his income? And, the salaried have no option but to pay tax at source or by way of TDS.
"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," Chidambaram said.
This norm will impact those in the information technology firms, as they get stock options which push their salary to the Rs 1 crore level. Even those in the financial services industries who get big bonuses and professional/consultants will be caught.
Given the exchequer may not benefit much from the collection, around Rs 128.40 crore (42,800 X Rs 3 lakh) at the Rs 1 crore income level, experts aren't sure about the purpose behind bringing this norm now.
Last, experts feel the finance minister has still not clarified the definition of super rich. "The ambiguity around who is super rich remain? Earning Rs 1 crore is not a big thing these days; many salaried individuals earn this much today. One may feel an industrialist is super rich. But there are many industrialists who earn over Rs 50 crore as dividend, which is tax exempt, but negligible salaries. They are super rich but not taxed," says Homi Mistry, tax partner, Deloitte, Haskins and Sells.
On a lighter note, tax experts feel this norm should be called surcharge for the rich and not for the super rich.