Budget 2026: Why experts advise govt against hiking tax surcharge on the super-rich

The government should avoid raising the income tax surcharge on super-rich individuals or reintroducing a wealth tax in the Union Budget for 2026-27, as such measures could significantly impact personal financial planning and even prompt high-income taxpayers to relocate to low-tax jurisdictions, tax experts have cautioned.

How the current surcharge structure works

At present, individuals earning over ₹50 lakh are required to pay a surcharge on income tax. A 10 per cent surcharge applies on income between ₹50 lakh and ₹1 crore, 15 per cent on income between ₹1 crore and ₹2 crore, and 25 per cent on income between ₹2 crore and ₹5 crore.

For individuals earning above ₹5 crore, the surcharge stands at 25 per cent under the new income tax regime, while those opting for the old regime pay a significantly higher surcharge of 37 per cent.

Revenue pressures vs personal tax burden

Independent economists estimate that recent GST rate cuts and lower income tax collections could reduce government revenues by nearly ₹2 lakh crore in the current fiscal year. While additional revenue sources in FY27 could support higher allocations to defence and other priority sectors, experts believe raising personal tax burdens may have unintended consequences.

Vertical equity must be carefully balanced: PWC

PWC & Co LLP Partner Amit Rana told PTI that India’s income tax system is based on the principle of vertical equity, where higher earners contribute a larger share of taxes.

“We have a pretty good slab, wherein at the highest level you pay 42 per cent, at the lowest level you pay almost zero, even at reasonable income levels. But when you start making it very prohibitive, you run the risk of high-income earners wanting not to be in India, and that is possible in the world today,” Rana said.

He added that taxation of high-income individuals needs to be carefully calibrated, as this group plays a critical role in creating businesses, generating employment and driving economic growth.

Risk of relocation if taxes turn uncertain: EY

“There could be a risk of individuals moving to low-tax jurisdictions if tax rates become too steep. Tax uncertainty and high effective rates may play a role in decisions around capital relocation and residency,” Marwah said, adding that stability and predictability in the tax regime are crucial for retaining capital and talent.

Why wealth tax was scrapped earlier

Marwah pointed out that wealth tax was abolished in 2015 because the collections did not justify the administrative effort involved. From a personal finance and compliance standpoint, she said, surcharges have generally been considered more efficient and less litigious.

“With access to stronger data trails through GST, CRS agreements and other systems, surcharge adjustments may continue to be viewed as a simpler option compared to asset-based valuation regimes,” she told PTI.

Capital flight a genuine concern: Legal experts

Shardul Amarchand Mangaldas & Co Partner Gouri Puri told PTI that higher tax rates could encourage capital flight and discourage entrepreneurship, while reintroducing wealth tax would raise concerns over compliance costs and administrative complexity.

“Capital flight is a genuine risk since mobile families can re-domicile to jurisdictions with lower tax rates. Global competition to keep tax regimes investor-friendly is intense, and harsher taxes may push capital away from India,” Puri said.

Recent surcharge cut makes hike unlikely: Deloitte

“This change has been in effect since April 1, 2023, and applies only to the new tax regime. Given this recent reduction, it seems unlikely that the government would hike the surcharge again within a short span of three years,” Agrawal told PTI.

Wealth tax collections unlikely to justify costs

On the wealth tax debate, Agrawal said speculation resurfaces ahead of every Budget, but historical data suggests collections are unlikely to be substantial enough to justify the cost of administering a new levy.

“The government’s focus has instead been on improving tax collections through better enforcement, use of technology and information-sharing arrangements with other countries,” he added.