Budget 2026: Why higher super-rich tax may backfire, experts explain

Tax specialists warn higher surcharges could push wealth and talent overseas

As the Union Budget for 2026-27 approaches, tax experts have cautioned the government against raising the income tax surcharge on high-income individuals or reviving the wealth tax, warning that such moves could drive capital and talent out of India, according to a PTI report.

 

At present, individuals earning above Rs 5,000,000 pay a surcharge on income tax, which rises with income levels. A 10 per cent surcharge applies on income between Rs 5,000,000 and Rs 10,000,000, 15 per cent on Rs 10,000,000–20,000,000, and 25 per cent on Rs 20,000,000–50,000,000. For those earning above Rs 50,000,000, the surcharge stands at 25 per cent under the new tax regime, while it is significantly higher at 37 per cent under the old regime.

 

Why are surcharge hikes being debated?

 

Independent economists estimate that recent GST rate cuts and lower income tax collections could cost the exchequer nearly Rs 2 lakh crore in the current financial year. With higher spending needs expected in areas such as defence, the government may look for additional revenue sources in FY27.

 

However, experts quoted by PTI argue that higher taxes on the super-rich may prove counterproductive.

  ALSO READ | Budget 2026-27: Govt likely to amend law to speed up debt recovery

Risk of capital and talent moving out

 

Amit Rana, partner at PWC & Co LLP, told PTI that India already follows the principle of vertical equity, where those who earn more pay higher taxes. He noted that the effective top tax rate is already steep.

 

“When taxation becomes very prohibitive, there is a risk that high-income earners may choose not to stay in India, which is increasingly possible in today’s globalised world,” Rana said, adding that such taxpayers often play a key role in creating industries and jobs. 

Echoing similar concerns, Surabhi Marwah, tax partner at EY India, told PTI, high surcharges or the return of wealth tax could push high-net-worth individuals to low-tax jurisdictions. She stressed that stability and predictability in the tax system matter as much as tax rates when the goal is to retain capital and skilled individuals.

Why is a wealth tax unlikely?

 

Experts also pointed out that wealth tax was abolished in 2015 because collections were low compared with the administrative effort involved. Marwah noted that surcharges are generally easier to administer and lead to fewer disputes than asset-based taxes.

 

Gouri Puri, partner at Shardul Amarchand Mangaldas & Co, told PTI that higher taxes could discourage entrepreneurship and job creation, while reviving wealth tax would increase compliance complexity.  ALSO READ | Budget 2026: Experts ask govt to not up income tax surcharge on super rich

Recent policy signals

 

Alok Agrawal, partner at Deloitte India, told PTI that the government reduced the highest surcharge from 37 per cent to 25 per cent in Budget 2023 under the new tax regime, bringing down the top marginal rate to about 39 per cent. Given this recent cut, he said, it appears unlikely that the government would reverse course within a short period.

 

Overall, experts suggest that instead of hiking rates, the government may continue to focus on improving tax collections through better enforcement, technology use and information sharing.

 

(With inputs from PTI)