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Does India have a high income tax rate? An analysis

The income tax rate for India follows a progressive tax regime, which means that individuals who earn more pay a higher share of taxes as compared to others. Moreover, some citizens often complain about the personal income tax burden in India.

In the latest Union Budget for the years 2019-2020, the surcharge rate for persons with an income between ₹2 crores to ₹5 crores was raised to 25% from the existing 15%. For individuals with an income more than ₹5 crores, the surcharge is now 37%. Since surcharge is the additional levy imposed on individuals drawing high incomes, the effective tax rate on individuals earning more than ₹5 crores is now 42.74%.

Compared to countries such as Canada, the U.K., the U.S.A. and China, the income tax rate for India is lower. While India’s highest tax rate is 42.74%, Canada’s highest rate is 54.0%. While the U.K. and China both levy their highest taxes at 45%, the highest tax rate in the U.S.A. is 50.3%.

While the highest tax rate is one measure that is analysed to compare taxation systems, it is necessary to compare effective, average tax rates. Taking rupees as a metric here for better understanding:

  • Canada: Among the 5 countries studied here, Canada has the highest effective tax rate. While the population earning more than ₹6 crore are taxed at 51.4%, those earning about ₹1 crore are subjected to taxes at a rate of 38.88%; which is significantly higher than other countries’.
  • China: In China, the tax rate imposed on individuals earning between ₹1 crore to ₹2 crore is 26.81%, while those earning more than ₹6 crore are subjected to taxes at a rate of 41.97%.
  • The U.K.: For persons earning an income between ₹1 crore to ₹2 crore in the U.K., taxes are levied at a rate of 29.13%. Meanwhile, those earning upwards of ₹6 crore are expected to pay taxes at a rate of 42.1%.
  • The U.S.A.: While the U.S.A. has the second highest tax rate for the highest earners, at 44.7%, it is low for those earning between ₹1 crore to ₹2 crores. Those individuals are subjected to a tax rate of merely 28.2%, which is lower than India’s.

In conclusion, the income tax rate for India broadly appears to be on par with global peers. It is neither unreasonably high nor low.

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