Taxing super rich: Surcharge & Dividend Tax #Budget2016

Globally everyone is talking about taxing super rich, idea is citizens who make more money should contribute higher share of their income to central income taxes than people who make less money. This allows for a redistribution of wealth that lowers inequality.  Following this principle, Govt. introduced surcharge, via Finance Act 2013,equal to 10% for income over Rs.10million, lateron via Finance Act 2015 the surcharge was increased from 10% to 12%. 

 Now in #Budget2016, Govt has proposed two amendments which will directly create additional tax liability on super rich people;

1. Increase in surcharge rate from 12% to 15%
2. Taxing dividends received by resident individual, HUF and firm at the rate of 10%, if annual dividend earned is more than Rs.10 lakh 

 Till now, when the company declares the dividend, the same is liable for Dividend Distribution Tax ('DDT'), 15% plus sucharge, under section 10(34) of the Income-tax Act ('the Act') and such dividend is treated as tax free income, as per Section 115O, in the hands of shareholder. Govt. has rightly felt that this creates vertical inequity amongst the tax payers as those who have high dividend income are subjected to tax only at the rate of 15% plus surcharge whereas other income in their hands would have been chargeable to tax at the rate of 30%.

 Now in order to remove this inequality and to create essentially additional tax burden on super rich, Govt has proposed to amend the Act, by inserting new section 115BBDA so as to provide that any income by way of dividend in excess of Rs. 10 lakh shall be subject to tax on gross basis, in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of 10%.  Going by historic data, average dividend yield is around 1.5% i.e. you should not be much worried if your investment in stock market is less than Rs.65 million.