Leading tax consultants and experts have issued a strong caution to the government, advising against any increase in the income tax surcharge for high earners or a revival of the wealth tax in the upcoming Union Budget for 2026-27. They warn that such measures could trigger an exodus of wealthy individuals to countries with lower taxes, ultimately harming domestic investment and job creation.
Risk of High Earners Relocating to Low-Tax Jurisdictions
The core concern raised by professionals from top firms like PwC, EY, Deloitte, and Shardul Amarchand Mangaldas is the mobility of modern wealth. Amit Rana, Partner at PwC & Co LLP, emphasized that while India's tax slabs are structured on vertical equity, making rates "very prohibitive" carries a significant risk. He stated that high-income individuals, who are crucial for building industries and generating employment, might choose not to reside in India, a real possibility in today's interconnected world.
Surabhi Marwah, Tax Partner at EY India, echoed this, noting that steep effective tax rates or the reintroduction of a wealth tax could influence decisions on capital relocation and residency. She stressed that stability and predictability in tax policy are as vital as the rates themselves when the goal is to retain capital and talent within the country.
Currently, individuals earning above Rs 50 lakh annually pay a surcharge on their income tax. The rates are:
- 10% for income between Rs 50 lakh and Rs 1 crore.
- 15% for income between Rs 1 crore and Rs 2 crore.
- 25% for income between Rs 2 crore and Rs 5 crore.
For those with income exceeding Rs 5 crore, the surcharge is 25% under the new tax regime and 37% under the old regime.
Wealth Tax Seen as Inefficient and Complex
Experts unanimously pointed out the historical inefficiency of a wealth tax, which was abolished in 2015. Alok Agrawal, Partner at Deloitte India, highlighted that the revenue collected from such a levy was minimal compared to the high cost and administrative burden of implementation. The government's focus, he added, has shifted to improving tax collections through technology-driven enforcement and international information sharing, such as GST data trails and CRS agreements.
Gouri Puri, Partner at Shardul Amarchand Mangaldas & Co, warned that a wealth tax would revive old concerns about compliance costs and administrative complexity. She also highlighted the genuine risk of capital flight, as mobile families can easily redomicile to more investor-friendly jurisdictions globally. Harsher taxes in India could discourage entrepreneurship and push investment capital away.
Fiscal Context and Future Outlook
The debate on potential revenue-raising measures comes amid estimates by independent economists that recent GST rate cuts and lower direct tax collections could cost the exchequer around Rs 2 lakh crore in the current fiscal year. This has sparked discussions on whether additional measures will be needed in the 2026-27 financial year to fund higher spending on defence and other priority areas.
However, experts suggest a hike in the surcharge is unlikely in the near term. Alok Agrawal reminded that the government had already reduced the highest surcharge from 37% to 25% in the Budget of 2023 for individuals earning above Rs 5 crore under the new tax regime. This brought down the maximum marginal tax rate from approximately 42.7% to 39%. "It seems unlikely that the government would hike this once again within a short span of three years," he concluded.
The overarching advice from the tax community is for the government to maintain a careful and stable balance, ensuring the tax regime remains competitive to keep wealth and job creators anchored in India.
