After his historic victory at the end of a long-drawn election campaign, Prime Minister Narendra Modi said in his victory speech on 23 May that according to him, only two castes existed in the 21st century India. One of them was of the people who want to come out of poverty. The other, he said, was of those who will lift the poor out of poverty. “We have to empower them both," he said.
Modi’s categorization of India’s 1.3 billion people into two distinct classes of the poor and the well-off, rejecting conventional notions of caste that shaped India’s politics for long, is defining India’s economic policies in a more pronounced way in his second term in office. Finance minister Nirmala Sitharaman who presented the Union budget for FY20 in Parliament earlier this month spent the bulk of her two-hour speech detailing the steps her government was taking for the poor, small businesses and farmers.
In a budget that proposed a whopping 20% jump in the central government’s budget spending to over ?27.8 trillion in FY20 from what was spent a year ago as per provisional estimates, Sitharaman had to explore new revenue sources. The choice was obvious: Tap those who can pay a little more in taxes to help the poor come out of poverty. Sitharaman proposed an increase in surcharge levied on income tax outgo of individuals with earnings more than ?2 crore, in two slabs.
It was raised from 15% to 25% where the income is between ?2-5 crore and from 15% to 37% for those earning more. In effect, a person earning in the range of ?2-5 crore will pay 39% tax (called the highest marginal tax rate for that person) on the income exceeding ?2 crore, and a person earning more than ?5 crore will pay 42.74% on the income exceeding ?5 crore. The surcharge increase soon got a name: Robinhood tax.
The increase is applicable to a host of tax payers including individuals, directors in companies on the remuneration that they receive, partners in firms on the remuneration that receive, shareholders who get dividend or benefit from capital gain on sale of shares. The profit share that partners in firms get are not subject to income tax and therefore does not attract surcharge either, explained Amit Maheshwari, partner at Ashok Maheshwari & Associates.
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