The government is gearing up for an overhaul of India’s tax regime by widening the “super-rich” net, rejiging existing slabs and introducing wealth tax on expensive watches, painting and other works of art.
An additional tax of 10% is also proposed if annual earnings from dividends on mutual funds and equities exceed Rs. 1 crore. These are among a slew of proposals included in the new direct taxes code (DTC) bill that the government, struggling with an ever widening current account deficit, plans to introduce in Parliament’s ongoing monsoon session.
“To maintain overall progressivity in levy of income tax, a fourth income tax slab is also proposed,” a senior officer, who did not wish to be identified, told HT.
At present, there are three tax slabs. Those with an income of less than Rs. 2 lakh a year are exempt from paying taxes. Those earning between Rs. 2 lakh and Rs. 5 lakh annually are taxed at 10%, those between Rs. 5 lakh and Rs. 10 lakh at 20% while anybody earning more than Rs. 10 lakh pays a tax of 30%.
The bill, which has been in the works for many years, also proposes to rearrange these slabs, sources said.
In addition, in this year’s budget finance minister P Chidambaram, for the first time, introduced a “super-rich tax”. “Relatively prosperous" persons with a taxable income of more than Rs. 1 crore — and there are supposedly only 42,800 of them in India — now pay an additional surcharge of 10%.
The government plans to introduce a higher tax slab for those with an annual income above a certain threshold, sources said. Those with an annual income of Rs. 50 lakh may be included in the “super-rich” club.
The scope of assets to be included in “net wealth” will be widened to include watches that cost more than Rs. 50,000, archaeological collections -– statues, coins or other artefacts -- paintings, sculptures or any other work of art and bank deposits outside India. Cash-in-hand limit, which is Rs. 50,000, will be raised to more than Rs. 2 lakh to be part of “net wealth”.
Wealth tax at the rate of 0.5% if the total value of such assets is between Rs. 5-20 crore and 1% if it is higher than Rs. 20 crore — up from the existing limit of Rs. 30 lakh at the rate of 1% -- is being planned.
The bill also redefines income from property which could make letting out houses for commercial purposes more taxing.