Finance Minister Arun Jaitley, laid out his tax proposal for 2015-16 with a motive to bring down the fiscal deficit. Contrary to the expectations of individuals, there has been no change in the existing base slabs and tax rates for individual tax payers. Keeping in view the aim to achieve the fiscal deficit target of 4.1%, nothing much has been tinkered around to meet the hopes of individuals.
However, the Finance Minister has proposed changes in the existing wealth tax provisions with an aim to simplify tax procedures, without compromising on tax revenues. It is proposed to abolish the existing Wealth Tax Act considering that it did not yield the desired revenue for the Government. Instead, an additional surcharge of 2% has been proposed to be levied on the super-rich with a taxable income of over Rs 1 crore.
Further, to keep a track on wealth held by individuals and entities, it is proposed that the information relating to assets required to be furnished in wealth tax return will now be required to be captured in the Income-tax return. This will ensure that the abolition of wealth tax does not lead to escape of any income from the tax net.
Currently, individual taxpayers are liable to pay wealth tax at 1% on net wealth exceeding Rs 30 lakhs as on the valuation date ie 31 March of relevant tax year. Net wealth means the aggregate value of all the assets (computed as per the provisions of the Wealth Tax Act, 1957) owned by the individual in excess of the liabilities in relation to these assets as on the valuation date.
The total wealth tax collection in 2013-14 was Rs 1,008 crore and as per the Memorandum to the Union Budget, the number of wealth-tax payers was around 1.15 lakh in 2011-12. The Government recognised that only a nominal amount of revenue was being collected from the levy of wealth-tax, and in contrast, this levy created significant compliance burden on the tax payers as well as administrative burden on the department. The objective of taxing high net worth persons by levying a surcharge on tax payer earning higher income is seen as easy to collect and monitor.
Budget 2015 has come-up with few amendments for individual taxpayers but the 'super-rich' have been saddled with additional tax liability. Thus, in effect, the tax rate for super-rich with income over Rs 1 crore works out to 34.61% approximately, which is almost in proximity of 35% proposed in the Direct Tax Code, 2013. While, the common man may have some reason to cheer essentially due to a move towards robust social security regime, there is no such reason for the super-rich.
(The article is authored by Poorva Prakash, Director, Deloitte Haskins & Sells LLP and Sana Zehra, Deputy Manager, Deloitte Haskins & Sells LLP)