High-earning Indians gave a collective groan when Finance Minister P Chidambaram imposed a 10 per cent surcharge on their income in his Budget 2013 on Thursday.
Just 42,800 of the country's 1.2 billion people will be affected by the extra tax on taxable earnings above Rs. 1 crore, according to Mr Chidambaram. The measure will be in place for one year.
The finance minister also increased the surcharge on domestic companies whose taxable income exceeds Rs 10 crore per year to 10 per cent from 5 per cent. In the case of foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 per cent to 5 per cent. The finance minister has upped the excise duty on big cars, particularly SUVs, and has hiked duty on imported cars and yachts.
He has also proposed that those who buy houses with a carpet area of over 2,000 feet or which costs over Rs 1 crore, will pay a service tax of 30 per cent of the value of the property.
On the other hand, Mr Chidambaram, while leaving tax rates unchanged, announced a tax credit of up to Rs 2,000 for those with incomes of not more than Rs 5 lakh. He has also said a first time home buyer taking a loan of up to Rs 25,00,000 will be entitled to an additional deduction of interest of up to Rs 1.00,000.
Naina Lal Kidwai, country head at HSBC India and president of the Federation of Indian Chambers of Commerce & Industry, called Mr Chidambaram's budget a "mix of Robin Hood and PC Sircar (India's most famous magician)."
Mr Chidambaram, seeking that extra cash to fund a dash for growth, said he expected those affected to pay up "cheerfully." "When I need to raise resources, who can I go to except those who are relatively well placed in society?" the minister asked. And when he proposed the surcharge on the income of rich individuals, said, "I believe there is a little bit of the spirit of Mr Azim Premji in every affluent tax payer," referring to the chairman of Wipro, one of the richest men in the country and also known for his philanthropy.
High earners demur. "There are substantial number of people with good income who are not paying taxes and the focus should have been more on bringing them under the tax net," said Sunil Duggal, CEO of Dabur India.
Issac George, director of GVK Power & Infrastructure Ltd, said, "He should have ensured compliance so that more people who have avoided taxes are brought into the net of taxes," said
Mr Chidambaram's party, the ruling Congress faces elections by May 2014, and the "Take from the rich, give to the less rich" move is seen as a populist one and is expected to play well with a vast base of voters.
With inputs from agencies