The finance minister P Chidambaram in his eighthÂ Union Budget increased the surcharge (or tax on tax) for the rich whose yearly income exceeds Rs 1 Crore. As stated by FM there are 42,800 individuals in the country, who fall in this category.
DomesticÂ companies wherein annual income crosses Rs 10 Crores, surcharge is levied at 10% earlier which was 5%. In case of foreign companies surcharge rate extends to 5% compared with 2% prevailing previously.
“It is much better to achieve a higher tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly – higher and higher tax rates impose more and more on incentives to undertake taxable activity, while encouraging tax evasion,” said the Pre-Budget Economic survey.
In the recent time, India argued the issue of taxing the wealthy individuals in line with many Western countries. As suggested by C Rangarajan, chairman of the Prime Ministerâ€™s Economic Advisory Council, that such a tax could be introduced in the upcoming federal budget. Some form of extra surcharge (or tax on tax) could be levied. However, the corporate world was passionately opposing such move.
Ways to Escape from the Levied surcharge:â€“
As reported by the Economic Times of India – As one of the 42,800 official members of the hallowed super-richÂ club whose taxable income of Rs 1 Crore and above your tax will increase by 10%. Yet, with some niftyÂ restructuring, there are ways to escape this new surcharge.
Take a Company Car on Lease: Instead of buying a car from your income, can ask your company to lease you one as part of your compensation. Your taxable income reduces to the extent of the cost of the car.
“It (the alternative arrangement) will be treated as a perk and a small value (Rs 1,800-2,400 a month depending on the size of the car) will be added to your income,” says Sudhir Kaushik, co-founder of Taxspanner.com. The same goes for your driver. Instead of you hiring a driver, and being compensated by your company through your salary, ask your companies to arrange for one.
You will shave off about Rs 10,000 a month from your taxable income and add just Rs 800 as a perk.Â Invest in NPS: You can lower your taxable income further by asking your employer to invest in NPS on your behalf.
Under the newly introduced Sec 80CCD(2), up to 10% of your basic salary is fully deductible if invested in the NPS. And there is no cap on the amount of deduction you can claim via this route. Take a home loan: If you take aÂ home loanÂ and give the house on rent, you can avail unlimited tax deduction for the interest paid on the loan.
For instance, if you take a home loan of Rs 50 lakh and pay Rs 6 lakh interest on it every year, you can claim deduction of only Rs 1.5 lakh a year in case of a self-occupied house.
But if you give it on rent, the entire Rs 6 lakh can be claimed as deduction. Sure, 70% of the rent will be added to your income, but you will still be a net gainer. There are more ways.
Your employer can resign the compensation package to include food coupons (maximum limit Rs 2,400), conveyance allowance and books and periodicals, all of which are non-taxable, but only up to certain limits.