Budget 2023 proposed to reduce the surcharge from 37 percent to 25 percent for those earning more than Rs 5 crore a year under the 'new income tax regime'. This means that, with effect from April 1, 2023, all income above Rs 2 crore would be subject to 25 percent surcharge. This also brings down the highest tax rate from 42.74 percent to 39 percent.
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What exactly is this surcharge?
A surcharge is an extra income tax to be paid by the taxpayers earning a higher income i.e., beyond a certain limit. Put simply, this is for high net-worth individuals (HNIs). There are different rates of surcharge applicable to different taxpayers under the Income Tax Act, 1961.
What is the existing rule?
As per the existing rules, a surcharge is applicable at the rate of 10 percent if net taxable income falls between Rs 50 lakh and Rs 1 crore, 15 percent for those with taxable income of between Rs 1 crore and Rs 2 crore. Those earning between Rs 2 crore and Rs 5 crore have to pay 25 percent surcharge, whereas those earning over Rs 5 crore pay 37 percent of the tax amount as surcharge.
What is the proposed surcharge?
Taxpayer | Income limit | Surcharge Rate on the amount of income tax |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | Net income exceeds Rs 50 lakh but doesn’t exceed Rs 1 crore | 10% |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | Net income exceeds Rs 1 crore but doesn’t exceed Rs 2 crore | 15% |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | Net income exceeds Rs 2 crore but doesn’t exceed Rs 5 crore | 25%* |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | Net income exceeds Rs 5 Crore | 25%* |
(Source: Clear)
How will HNIs benefit?
Experts called this a very good step.
Rahul Jain, President and Head at Nuvama Wealth said that this will be a big boost for investment opportunities and savings for those in the high-income bracket too.
Adding to this, AKM Global, Partner- Tax, Sandeep Sehgal said the effective tax rate on HNIs is very high compared to other countries, which has been acknowledged by the finance minister as well.
"Although, it is applicable for HNIs opting for the new tax regime only but in all likelihood, the new tax regime would suit the HNIs more. However, there is scope for reducing it further to encourage income and wealth generation," Sehgal said.
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