Surcharge on 50 Lakhs + of Income
And just when you thought that the Bharatiya Janata Party or BJP is a pro-rich, pro-business party, the Budget 2017 come up with a completely different tale to tell. Clearly discarding Nehruvian Socialism and Manmohanomics, Modinomics and Jaitleynomics did something that the country needed most. Deficit financing was the base of Manmohanomics, which dangerously pushed India to near bankruptcy on a global stage. 10 years of inept legacy of Manmohan Singh, which claimed to be based on Keynesian economics, was actually far from anything Keynes ever said.
On the contrary, John Maynard Keynes was one of the greatest advocates of demonetization and that is precisely what the BJP-led government did in order to undo the economic-terrorism that ruled India for a decade. While there is a lot to talk, this is definitely not the right time to do so. All we will say is that November 8’s demonetization, followed by a relentless effort of transforming India into a cashless economy and then the Union Budget of 2017-2018 served as a triple whammy on Nehruvian Socialism as the BJP-led Union Government resorted to the route of radical change as opposed to egalitarian process-based natural and gradual intervention of state using democratic and popular means.
So, what message did Budget 2017 send?
Budget 2017 clarified a few things:
- RIP Nehruvian Socialism – there is a need for radical change.
- Deficit financing is not fiscal prudence as it only leads to liquidity trap where money supply increases, money velocity decreases and growth may become stagnant (as seen in case of Obama rule in America) and clear enough – increase in money supply equates to increase in black money and corruption – a parallel economy that kills the formal economy.
- Fiscal prudence is one of the top priorities where maintaining a negligible current account deficit (CAD), containing regressive tax (that is, inflation) and aiming for low fiscal deficit are of paramount importance to ensure India’s credit ratings on international stage are high.
- Uprooting poverty, empowering women, energizing and skill-plastering Indian youth are other top priorities.
- Increase government spending in agriculture, infrastructure etc.
So, how is government going to maintain fiscal prudence and still increase spending?
This where these points come in:
- Demonetization – money velocity increased – money changes hand more frequently – money exchange takes place within formal economy – national income and employment boosts up.
- Push for cashless economy – keep tab on income and expenditure – increase tax collection.
- Tax the rich more.
Hey wait! Tax the rich more?
Yes, Budget 2017 has been designed specifically to do so. Breaking free of the long-standing accusation that BJP is pro-rich, Arun Jaitley announced a few unexpected things when it comes to taxation. Here is what the Union Finance Minister said:
- MSMEs with income up to 50 crores in a year will see a reduction in income tax by 5 percentage points.
- People in the income bracket of INR 2.5 lakhs to INR 5 lakhs in a year will pay half of tax they used to pay. This means that now, the payable income tax will be 5% and not 10%. [Middle class category]
- People in the income bracket of INR 51 lakhs to 1 crore in a year will have to pay a surcharge of 10%. [Rich category]
- People in the income bracket of INR 1 crore and above will have to pay a surcharge of 15% as usual. [Super-rich category]
So, the Union Government decided to tax the rich and the super-rich more that middle class people.
Some statistical data for supper
- It was Finance Minister, P. Chidambaram who introduced the surcharge rule. Back in 2013-2014, a surcharge of 10% was levied on super-rich category of people.
- After BJP came to power in 2014, Union Finance Minister, Arun Jaitley increased the surcharge on super-rich to 12% for Budget 2015-2016.
- For Budget 2016-2017, Jaitley again hiked the surcharge for the super-rich category to 15%.
- In Budget 2017-2018, for the first time in history of India, the Union Government imposed 10% surcharge on the rich category of people.
Some crude numbers
Arun Jaitley gave these numbers during his Budget speech on February, 1, 2017:
- There are 1.72 lakh people in India who fall in the rich category (INR 51 lakhs to INR 1 crore) – as per ITR filings of 2015-2016.
- 10% surcharge on 1.72 lakh people will lead to INR 2,700 Crore in tax revenues for the government.
- There are only 24,942 Indians who fall in super-rich category as per the ITR filings of 2013-2014.
The rich and super-rich are now under the government’s radar. People who invest large amounts of money and have dividend earnings equal to or greater than INR 10 lakhs, will have to pay 10% tax on all their dividend earnings – applicable to every resident Indians barring institutions, trusts and domestic companies.
If you have annual income of INR 51 lakhs – you pay a surcharge of INR 1.25 lakhs.
If you have annual income of INR 99 lakhs – you pay a surcharge of INR 2.73 lakhs.
So, it is no longer favoritism (for the rich). It is all about collective growth and shared responsibility with proportionate burden sharing when it comes to tax.