By Aditya Modani and Chintan Mehta
In the last Union Budget, the Hon’ble Finance Minister increased the rebate to INR 12,500; thereby resulting in taxpayers having income upto INR 500,000 not paying any taxes. On the other hand, the tax rates for super rich taxpayers saw a steep increase from a maximum marginal rate of 35.88% to 42.744% (total income above INR 5 Crores) because of increase in surcharge rate from 15% to 37% (for taxpayers having total income between INR 2 to 5 Crores, surcharge rate was increased to 25%, resulting in maximum marginal rate of 39%).
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With the several measures taken by the Hon’ble Finance Minister during the Financial Year 2019-20, to boost the slowing economy and provide stimulus to industry, there are high hopes that there would be a change in personal tax rates and/or increase in chapter VIA deduction under section 80C of the Income tax Act, 1961. Before the Union Budget 2020 is presented, let’s look at the history of surcharge, tax rates and limits of section 80C deductions of past 10 Financial Years.
With a clear intention of taxing super rich, the Government has steadily over time increased the rate from 10% to 37% in FY 2019-20.
*For FY 2013-14 to 2016-17, surcharge was applicable for total income exceeding INR 1 Crore.
*For FY 2017-18 and 2018-19, surcharge at a rate of 10% was levied if total income exceeds INR 50 Lakhs. Surcharge at a rate of 15% was levied if total income exceeded INR 1 Crore.
*For FY 2019-20, surcharge at a rate of 10% was levied if total income exceeds INR 50 Lakhs.
Surcharge at a rate of 15% or 25% or 37% was levied if total income exceeded INR 1 Crore or INR 2 Crores or INR 5 Crores respectively.
With the changes in surcharge rate in FY 2019-20, India entered in the league of countries with high tax rates. Below table shows how the tax rates for individuals has increased over the last decade:
*Note: The said table depicts the highest tax for the individual tax payers (earning total income more than INR 5 Crores) other than women, senior citizen for the FY 2009-10 to FY 2019-20, as applicable.
The tax rates include surcharge and education cess as applicable for the said FY. The last decade has seen increase in cost of living, while the Chapter VIA deduction under section 80C has not kept pace with such increase in living. Below is a summary of section 80C limits for the past decade:
*Note – the above does not include other deductions available under Chapter VIA viz., premium paid for medical insurance, additional deduction for contributions to National Pension System, etc.
Like always, we all wait in hopes and expectations of some tax breaks on personal tax side. However, the decision to cut any taxes may be challenging considering the state of economy, recent corporate tax cuts and fiscal roam available to the dispensation.
(Aditya Modani is Tax Director, People Advisory Services at EY and Chintan Mehta is senior tax professional at EY. Views expressed are personal.)
