The super-rich is likely to be hit with an unpleasant double blow. They will have to pay interest on the advance tax installment that was due on June 15, in line with their extended liability on the back of higher surcharge on those taxpayers whose incomes is above Rs 2 crore.
The surcharge, although announced only in the July 5 budget, will be effective from April 1, 2020, the start of the financial year. Interest on the additional liability due to the surcharge has to be borne as there is no specific waiver from this.
Tax experts said the government should provide a waiver as the taxpayers aren’t to blame. “Individuals will be saddled with the liability for payment of interest under Section 234 C for no default on their part,” said Dilip Lakhani, a senior chartered accountant. The government should carry out a suitable amendment to waive interest, levied at the rate of 3%, he said.
“This seems to be an anomaly and would unnecessarily penalize taxpayers who are not at fault,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
The government should come up with significant amendments so that interest won’t have to be paid.
However, Government officials played down the impact. “Interest will only run post-June 15 and should not amount to anything significant,” said one.
This issue has arisen only because the full budget was presented in July, as is typical in an election year.
New Income Tax Rule: FPIs Affected
The government has proposed to increase the surcharge levied on top of the applicable income tax rate from 15% to 25% for those with taxable incomes between Rs 2 crore and Rs 5 crore, and to 37% for those earning more than Rs 5 crore, taking the effective tax rate for them to 39% and 42.74%, respectively.
The proposed surcharge will apply to individuals, trusts, Hindu Undivided Families, firms, and Associations Of Persons (AoPs). Besides, for an individual earning a total income of more than Rs 5 crore, the long-term capital gains tax rate will go up to 14.25% from 12%, while the short-term capital gains rate will rise to 21.4% from 17.9%.