Why does not it make sense to take a tour if you win Rs 2cr?

NEW DELHI: If you have a tax income of just under Rs 2 crore or Rs 5 crore, unless you have a very strong walk, your take home will not increase at all. This is because with the new surcharges in this Budget: 25% for those who win between Rore 2 crore and Rs 5 Crore; and 37% for those who got Rs 5 million rupees and more: the moment someone hits Rs 2 crore or Rs 5 crore, their fiscal responsibility will trigger the surcharge for income s below Rs 2 crore is 15%.

Say, someone’s taxable salary now is Rs 5 crore, his fiscal responsibility shoots up by Rs 33.9 lakh, because the surcharge is now 37%, up from 15% (which before Budget 2019 was the standard surcharge for those earning above Rs 1 crore). Even at a salary of Rs 2 crore, the surcharge has seen a sharp increase from 15% to 25%.

Super rich tax graphic (1)Super rich tax graphic (1)

In the new system, if one’s income increases by Re 1 from Rs 2 crore or Rs 5 crore, his fiscal responsibility will go up. But the good news, of course, is that the tax system is such that it will not allow his take-home salary to go down. Say, his income goes up by Rs 10 lakh. That would lead to a lower take-home with the present taxes. But the system will ensure that he won’t have to pay the full fiscal responsibility it will deduct only the extra Rs 10 lakh he earned as increment. This will go on till he crosses Rs 33.9 lakh. So, in effect he will not be better off, but not worse off either.

the tax slabs have not changed, but it’s the surcharge which pushes up rates across the slabs. Take for example, someone earning between Rs 2 crore and Rs 5 crore. the base rate for income between Rs 2.5 lakh and Rs 5 lakh will increase from 5% to 6.25% and the tax rate of 20% on income between Rs 5 lakh and Rs 10 lakh to 25%. In the highest tax slab, the rate will go up to 37.5% from 30%. With 4% tax Rates become 6.50%, 26% and 39%.

In the Rs 5 crore-plus category with 37% surcharge , plus 4% tax , the peak tax rate goes up to 42.74%. the rate up to Rs 5 lakh becomes 7.12%; for Rs 5-Rs 10 lakh it is 28%.