How can HNIs benefit from the reduction in the highest surcharge rate on income tax?

Date : 08/03/2023
Read: 3 mins

In the Union Budget of 2023, Finance Minister Mrs Nirmala Sitharaman has announced a reduction in the highest surcharge rate from 37% to 25%. As a result, the effective income tax rate for those earning above Rs. 5 crores annually will come down to 39% from 42.74%.

During her budget speech on the 1^st of February 2023, the Finance Minister of India - Mrs Nirmala Sitharaman - proposed a reduction in the highest surcharge rate on income tax. As per the proposal, the income tax surcharge for individuals with an annual income of Rs. 5 crores or more will come down from 37% to 25%, bringing the effective tax rate to 39% from 42.74%.

Let’s discuss how High Net-worth Individuals or HNIs in India can benefit from this income tax rebate and what will be its overall impact.

What are the current surcharge rates?

A surcharge is an additional tax applicable over and above the basic income tax amount. It is paid by individuals with higher incomes. As per the existing income tax rules, a 10% surcharge is levied if a taxpayer’s annual income lies between Rs. 50 lakh to Rs. 1 crore, 15% if the annual income lies between Rs. 1 crore to Rs 2 crores, 25% if the annual income lies between Rs. 2 crores to Rs. 5 crores, and 37% if the annual income is greater than Rs. 5 crores.

Also Read: 5 Changes In The New Tax Regime: Know How Much Will You Save

What will be the surcharge rates in the new tax regime?

In the Union Budget 2023, the government has decided to reduce the surcharge rate for individuals with an annual income of more than Rs. 5 crores to 25% from 37%. However, the surcharge rates for other income categories remain the same.

It means that individuals with a net taxable income of Rs. 5 crores or more will be the primary beneficiaries of this move. However, one can benefit from the reduced surcharge rate only if they have opted for the new tax regime.

How would taxpayers with higher incomes benefit?

Let’s understand how HNIs would benefit from the reduced surcharge rate through a simple calculation. Suppose the taxable income of a person is Rs. 5.5 crores after deducting all tax exemptions. As per the old tax regime, they will have to pay an income tax of Rs. 2.31 crores to the government (including Rs. 60 lakh surcharge @ 37% rate).

However, if their income tax is calculated as per the reduced surcharge rate in the new tax regime applicable for the Financial Year 2023-24, their total tax outgo will come down to Rs. 2.10 crores (including Rs. 40 lakh surcharge @ 25% rate). So, a person with a taxable income of Rs. 5.5 crores will save around Rs. 20 lakh after the surcharge rate cut is implemented.

Also Read: 5 Tips To Invest Wisely Under The New Tax Regime

Impact of this move on consumers

As evident, HNIs with an annual income of more than Rs. 5 crores will benefit from this reduction in the surcharge rate. So, taxpayers falling in the higher income categories are expected to opt for the new tax regime proactively for the upcoming financial year.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

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