The government should avoid increasing the income tax surcharge on high income individuals or reintroducing a wealth tax in the Union Budget for 2026–27, as such steps could encourage the super rich to move to low tax jurisdictions, according to tax experts. They cautioned that excessive taxation may lead to capital flight at a time when India is competing globally to attract investment and talent.
At present, income tax surcharge is applicable to individuals earning more than Rs 50 lakh annually. A surcharge of 10% is levied on income between Rs 50 lakh and Rs 1 crore, 15% on income between Rs 1 crore and Rs 2 crore, and 25% on income between Rs 2 crore and Rs 5 crore. Individuals earning above Rs 5 crore pay a surcharge of 25% under the new tax regime, while those under the old tax regime face a significantly higher surcharge of 37%.
Independent economists estimate that recent GST rate cuts and lower income tax collections could cost the exchequer nearly Rs 2 lakh crore in the current financial year. Any additional revenue sources in FY27 could help the government increase spending on defence and other priority sectors, but experts argue this should not come at the cost of discouraging high income earners.
PWC and Co LLP Partner Amit Rana said the principle of vertical equity guides income taxation, meaning higher earners should pay more tax. However, he warned that overly punitive rates could have unintended consequences. He noted that India already has a broad tax structure where the highest earners pay around 42%, while lower income groups pay minimal or no tax. Making taxation too prohibitive, he said, could prompt wealthy individuals to relocate abroad, which is increasingly feasible in today’s globalised world. Rana added that high income individuals often play a key role in creating industries and generating employment, making a balanced approach essential.
EY India Tax Partner Surabhi Marwah echoed similar concerns, saying there is a real risk of high net worth individuals shifting to low tax jurisdictions if surcharges are increased or a wealth tax is reintroduced. She said tax uncertainty and high effective rates can influence decisions related to capital movement and residency. According to her, stability and predictability in the tax regime are as important as the tax rates themselves when the objective is to retain capital and skilled individuals.
Marwah also pointed out that from an administrative standpoint, surcharge adjustments are generally considered more efficient and less prone to litigation compared to wealth tax. With the government now having access to extensive data through GST systems, international information sharing agreements and other mechanisms, policymakers may prefer surcharge tweaks over complex asset based taxation.
Shardul Amarchand Mangaldas and Co Partner Gouri Puri said higher tax rates could discourage entrepreneurship, investment and job creation. She added that reintroducing wealth tax would revive concerns related to administrative burden and compliance costs. According to her, capital flight is a genuine risk, as affluent families can relatively easily relocate to countries with more favourable tax regimes, and harsher taxation in India could push capital away.
Deloitte India Partner Alok Agrawal noted that in Budget 2023, the government had reduced the highest surcharge rate for individuals earning above Rs 5 crore from 37% to 25% under the new tax regime. This move lowered the maximum marginal tax rate from about 42.7% to around 39% and came into effect from April 1, 2023. Given this recent reduction, he said it appears unlikely that the government would reverse course and raise the surcharge again within a short span of three years.
On the question of wealth tax, Agrawal said speculation resurfaces almost every year ahead of the Budget. However, past experience suggests that wealth tax collections are relatively small compared to the cost and complexity of administering such a levy. As a result, the government has instead focused on improving tax compliance and collections through better enforcement, use of technology and enhanced information sharing with other countries.
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