Following the recession, some countries have taken the lead in imposing taxes specifically targeting high net worth individuals. India appears to be following suit. Of the various tax measures the Government was considering, the 2013 Budget, which was presented on February 28, 2013, has chosen to enact a more progressive rate of tax on persons beyond the income threshold of Re10m. While India does not have an estate tax currently, there has been talk of reintroducing it at some point in the near future. This article looks at two trends in Indian personal taxation: increased progressivity and heightened transparency.

On August 14, 2011, Warren Buffett, the philanthropist chairman of Berkshire Hathaway, published an oped in the New York Times calling for US tax policy makers to stop coddling the superrich. Therefore, when the Indian business magnate Azim Premji (Wipro chairman, third richest Indian and 41st richest man in the world) made statements at the 2013 World Economic Forum in Davos about higher taxes on the super-rich being a politically correct move, it was inevitable that comparisons would be drawn between the two.

India is no stranger to discussions on sharp progressivity. India's maximum marginal tax rate was, at one point in time, as high as 97% at the highest slab. However, over the last two decades post liberalisation, there has been a coordinated move to reduce tax rates and expand the tax base in an attempt to provide an atmosphere conducive to compliance and to encourage the free flow of funds through the economy. In the recent past, the economic downturn has formed part of the context against which the discussions on progressivity have achieved new relevance, and these discussions have made their presence felt in India as well. This piece attempts to examine two key trends in the personal tax space in India today.

A higher tax burden on the super-rich

Proponents for a higher rate of tax on the Indian super-rich argue that extreme income inequality in India is enough justification for the introduction of greater progressivity in the system. Liberalisation has had benefits for all but India's poorest. Along with reports of a doubling of economic inequality in India,1 there are also reports of an increase in the number of High Networth Individuals (HNIs) in India2 (a recent study has projected that the number of HNIs and ultra-HNIs will triple in the next five years to 219,000 by 2015-16, accounting for about Re235 lakh crore in wealth).3 This has brought the super-rich under the Government's spotlight as a significant tax base.4

The discussion in India also appears to be influenced by the approach that other countries have taken towards more progressive taxation. In the US where the recession originated, the extension of the Bush-era tax cuts into 2012 (beyond the sunset clause of 2010) was much maligned for its role in prolonging the impact of the recession. Recently, legislation was passed to revert to a top income tax rate of 39.6% for single individuals in the top slab bracket.5 The UK had imposed a 50% top rate on incomes above the threshold limit of £150,000, which has been revised to 45% from 2013-14 onwards.6 France had sought to impose an ambitious top rate of 75% with the hope of reducing €85bn of deficit by bringing in €300m.7 The French Finance Bill 2013 contained a provision to impose 75% tax (applicable for one year) on individuals with income above €1m. This measure was struck down as unconstitutional by the Constitutional Council because it created inequality by being calculated on individuals rather than households.8

There has also been discussion about the manner in which differential taxation of capital gains and ordinary income has favoured the higher income bracket of individuals who may have more investment income. In the US, one measure that was singled out for being a tax shelter for the high income earners was the ability of investment managers to get "carried interest" treated as capital gains and taxed at the lower rate of 15% (as opposed to the marginal rate of 35%, which would have applied had this been treated as salary income).9

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1 http://articles.economictimes.indiatimes. com/ 2011-12-05/news/30477784_1_oecd-regioninequality- cent-of-global-output.

2 hni-population-grows-by-20-percent/ 1/19634.html.

3 For this study, UHNI was defined as a person or household worth Re25 crore or above, study by Kotak Wealth and Crisil Research, http://business charity-philanthropy/ 1/16122.html.

4 The same study concluded that there were around 62,000 ultra HNIs or households in India in 2010-11, with a net worth of about Re45 lakh crore.

5 2013/01/05/updated-2013-federal-income-taxbrackets- and-marginal-rates/.


7 france-super-rich-tax_n_2380887.html

8 France - Finance Bill 2013 – 75% tax rate for high income earners removed by Constitutional Council (Dec 31, 2012), News IBFD

9 "Stop Coddling the Super-Rich", Warren E. Buffet, The New York Times, August 14, 2011, -coddling-the-super-rich.html?_r=0

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