Surcharge of 2% on super-rich replaces wealth tax

Surcharge will yield Rs 9,000 crore to the exchequer

It’s not a Budget that will make the taxpayer very happy. Barring a few increases in tax exemptions, for travel allowance and health insurance, there aren’t the numbers that will help them save tax or provide more cash in hand. There aren’t any increases in the basic exemption limits or 80C benefits. In fact, the Budget seems to be working harder on tax compliance, while doing away with some taxes deemed unnecessary. The wealthy or super-rich, defined as someone with annual taxable income of over Rs 1 crore, will have to pay an additional surcharge of two per cent. The surcharge now is 12 per cent. There won’t be any wealth tax, paid so far at one per cent if the value of certain assets and cash on hand exceeded Rs 30 lakh.

Says Parizad Sirwalla at KPMG India: “The super-rich will cough up more taxes as the enhanced surcharge of two per cent as income more than approximately Rs 1.05 crore is to be impacted by around 1.8 per cent extra tax liability. This more than compensates the loss of revenue to the exchequer by abolishment of wealth tax. The peak tax rate for the super-rich is increased from 33.99 per cent to 34.61 per cent.”

Importantly, the focus is now on compliance. “The substantial focus on compliance, with introduction of a new law for penalising concealment or furnishing inaccurate particulars of foreign income/assets. These are now non-compoundable and prosecutable, with a much higher penalty,” adds Sirwalla.

Jan Dhan: Roti, kapda, bank account

Even non-filing of returns or filing with inadequate disclosures in this regard will attract a punishment of up to seven years. Similarly, undisclosed income from any foreign asset will be taxed at the maximum marginal rate. Also made more stringent is unaccounted (‘black’) money in real estate. Finance Minister Arun Jaitley has proposed to introduce a Benami Transactions (Prohibition) Bill. There are also substantial moves like prohibition from acceptance or repayment of an advance of Rs 20,000 or more in cash for purchase of immovable property. Also, all sales of over Rs 1 lakh will have to mandatorily have a PAN number.

“The introduction of the new rules will increase hassles for the wealthy. Dealing with the income tax department is a nightmare. The extra disclosure means answering of numerous queries raised by the sleuths and there will be a lot of back and forth,” said a tax consultant.

Says Sonu Iyer, partner, EY: “Fiscal prudence prevailed and the tax sops announced for the taxpayers — increase in deduction for New Pension Scheme, health care insurance and transport allowance, tax-free infrastructure bonds — will support, overall, a culture of savings and growth. Repealing the Wealth Tax Act and replacing it with a more realistic two per cent surcharge on the super- rich is very welcome. There are strong measures for curbing black money and making those with unaccounted wealth accountable and punishable for failing to report and evading taxes.”