Budget impact: Super-rich tax hits 1,000 executives in corporate India

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With Finance Minister Nirmala Sitharaman increasing the surcharge on income-tax (I-T) in the Union Budget for individual taxpayers, the country’s super-rich will have to shell out more.

The Budget will raise the effective tax rate for two categories — individuals earning an annual income between Rs 2 crore and Rs 5 crore, and those earning more than Rs 5 crore. According to the data collated by the Business Standard Research Bureau, there were 366 executives in listed companies earning more than Rs 5 crore in 2017-18 (FY18), and another 588 with income between Rs 2 crore and Rs 5 crore.

Overall, 901 listed companies had 1,720 officials earning more than Rs 1 crore in FY18.

While the list of top earners in India Inc has more promoters, several professionals, too, have found place there. According to Vivek Khemka, partner with executive search firm Egon Zehnder India, “professionals in technology and banking and finance are among the top earners”.

Some top executives with high income in FY18 included Tech Mahindra Managing Director and Chief Executive Officer C P Gurnani, Larsen & Toubro Group Chairman A M Naik, Sun TV’s Maran family, and promoters such as Hero MotoCorp’s Pawan Munjal, JSW Steel’s Sajjan Jindal, and Apollo Tyres’ Kanwar family. All these executives and several others across India Inc who earn over Rs 5 crore will attract the highest effective tax rate of 42.74 per cent from this year. Those earning between Rs 2 crore and Rs 5 crore will have to pay 39 per cent on their income. 

Till last year, both categories attracted the highest effective tax rate of 35.88 per cent, which included a surcharge of 15 per cent, cess of 4 per cent, and I-T of 30 per cent. The Budget has increased the surcharge on tax for individuals earning between Rs 2 crore and Rs 5 crore a year to 25 per cent and for those earning more than Rs 5 crore annually to 37 per cent. The cess of 4 per cent stays.

Besides officials in listed companies, many in unlisted family-owned and foreign firms, senior partners at law and accountancy firms, film actors, and sportspersons are in the highest tax bracket. However, there are 80,000 individual taxpayers who earn over Rs 1 crore a year. Experts estimate fewer than half of these will earn more than Rs 2 crore a year, which means the increased tax will be applicable to a small number of people.  

While it’s early days, there are expectations of some reorganisation in compensation. “There will be negotiations with human resources departments but of course it remains to be seen how many changes will be accommodated,” added Khemka.

Rituparna Chakraborty, co-founder and executive advisor staffing company TeamLease Services, is not optimistic. “In the long run, executives who earn incomes in these brackets will have little choice but to absorb the increase,” she said.

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