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Increase in surcharge rate slow down the growth pace of Indian economy

July 6, 2019 933 Views
Geetanshu Bhalla
Chartered Accountant

Modi Govt. has already presented its maiden budget for FY 2019-20. In order to keep its target budget of direct tax collection for AY 2020-21 higher, Modi Govt. has proposed to create two new surcharge slab for individual taxpayers having income exceeding INR 2 crores and INR 5 crores crore for levying of surcharge @25% and 37% respectively. However, it seems that the analysis of profile of such Individual taxpayers were not carried out in details, as mostly individual taxpayers who would be covered under this proposed provisions are salaried taxpayers including inbound assignees who are highly skilled professionals and whose services are the most important driver at this junction to accelerate the pace of Indian economy.

Possibility of migration of high skilled professionals

In the era of globalization, when anyone is free to select their country of employment and where ample opportunities are available for the skilled and talented workforce, the proposed provision seems not only create the possibility of migration of Indian high skilled professionals but also create the possibility of making Indian economy non-competitive for attracting the international assignees in terms of selecting India as their country of employment.

De rail – Make in India

The proposed provision may also derail the Hon'ble Prime Minister dream project- Make in India as the main objective of Make in India is to manufacture the international quality products in India. However, we all know that India does not have sufficient technology to produce or manufacture all kind of products as per international standard and thus, at this juncture, the import of technology and the high skilled professionals are the pre requisite for making the project "Make in India" successful.

De rail – Indian Companies

Even this provision may hit the Indian companies having international assignees on board because the tax cost of inbound assignees are generally borne by the Indian companies and hence, grossing up on tax is required in those cases. Thus, the effective tax rate on such employment arrangement of inbound assignees would be 74.57% after implementing this proposal which seems to be very high and unreasonable. Needless to mention that Indian companies could not avoid to adopt such employment arrangement of international assignees or to appoint such international assignees on board owing to their independence on them on account of technology, managerial skills, international market exposure, etc. Hence, if this provision is going to be implemented, the possibility to slow down the pace of Indian economy could not be completely ignored.

Suggestion:

Either withdraw this proposed provision wholly or increase the threshold limit to INR 10 crore and INR 50 crores from INR 2 crore and INR 5 crore respectively or restrict its applicability to the taxpayers having business income in India.

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