Despite a strong growth in the number of persons filing income-tax returns since 2014, the Centre has been struggling to meet its target for basic I-T collections every year. This appears to have made it turn towards supplementary levies such as I-T surcharge and cesses to bolster its collections in FY19. Experts think the Centre could tinker with the surcharge in the upcoming Budget, too.
“Surcharges are meant to make the Indian tax system ‘progressive’ since they ensure that the rich contribute more to the tax kitty than the less privileged class,” said Neha Malhotra, Executive Director, Nangia Advisors LLP. “Surcharge and education cess were originally introduced for a short period but they have stayed on, and have only increased year after year.”
Basic I-T collections (excluding surcharge, cess and other taxes on income) were just 94 per cent of the budgeted amount in FY18 and 98.7 per cent in FY17. It has been observed that in years when economic growth is under pressure, the collection is lower. For instance, in FY15 and FY16, collections were less than 90 per cent of the budgeted amount.
Given the vagaries of I-T collections, supplementary levies, including surcharge and cess, have shored up total collections over the years (
Why the jump?
The estimated increase in other components of I-T in FY19 could be due to the introduction in the Finance Bill of 2018 of a surcharge at the rate of 10 per cent of the I-T amount on those earning more than ₹50 lakh and up to ₹1 crore.
Besides this, in 2018, a 3 per cent education cess on I-T was replaced with a 4 per cent health and education cess. Cess collections on I-T are, therefore, projected to increase 67 per cent in FY19.
The 10 per cent tax on long-term capital gains arising from transfer of equity shares and equity mutual funds exceeding ₹1 lakh a year, and the 10 per cent tax on dividends distributed by equity mutual funds are also expected to add to the total I-T collections.
A useful levy
Surcharge rates have been steadily increasing in the past few years. In Budget 2015, the surcharge on I-T levied on individuals earning an income of ₹1 crore or more was increased from 10 per cent to 12 per cent. It was further increased to 15 per cent in 2016.
Surcharge collections are useful to the Centre as they can be kept in the Consolidated Fund of India and spent like any other tax revenue, while cess revenue can be spent only for the specific purpose for which it is collected.
Another benefit is that the surcharge collected belongs to the Centre and need not be shared with the State governments, said Samir Kanabar, Tax Partner, EY India.
India has among the highest rates of surcharge globally. “Other than India, very few countries levy a surcharge on personal income-tax,” said Nangia Advisors’ Malhotra. Germany levies a 5.5 per cent solidarity surcharge and church tax, and Portugal levies a solidarity surcharge in the range of 3.5 per cent to 5 per cent.
Will the surcharge be increased in this Budget?
“If the taxes being collected in the form of CGST (belonging to the Central government) are less than the Central taxes during the pre-GST regime, such as excise and service tax, the government might do some ‘adjustments’ and recover more from the surcharge to make up for the lower collections from CGST,” said Kanabar.
“It is only appropriate to tax the rich and corporates to fulfil the basic needs of the less privileged in our country,” added Malhotra.