Budget 2023 Provides Some Tax Relief To The Uber Rich Or Maybe Not?

Finance Minister Nirmala Sitharaman announced a reduction in personal tax rates for high net-worth individuals. But, in contrast has plugged in certain tax avoidance options.

By reducing the highest surcharge rate from 37% to 25% in the new tax regime, the highest tax rate for all individuals with an income of Rs 5 crore or more-HNIs-has been reduced from current 42.74% levels to 39%.

Thus, for an individual earning an income of Rs 10 crore, the tax outgo would now be Rs 3.9 crore instead of Rs 4.27 crore earlier, resulting in a tax saving of Rs 37 lakh.

However, the government on the flip side, has plugged in the tax avoidance options available with the HNIs in this Union Budget.

• Market-linked debentures

• High- insurance policies

were the two devices predominantly used by those in the highest tax bracket. These are now being rationalised.

In case of market-linked debentures, the taxation changes announced today eliminate the tax arbitrage enjoyed by uber-rich investors holding them. The income from sale of such debentures will now be taxed under short-term capital gains as opposed to lower long-term capital gain taxes.

For high- insurance policies or a cumulative policy premium outgo exceeding Rs 5 lakh, the government has proposed to tax the payout on such policies except in case of death of the policyholder.

So, on an overall basis, there may not be a net reduction in the tax outgo of HNIs, it may just be a reduction from a high marginal rate inducing certain avoidance devices with now fewer opportunities to avoid.