AMITY UNIVERSITY CHHATTISGARH

AMITY LAW SCHOOL

TAXATION LAW

RESEARCH PAPER

TOPIC- TAX THE RICH, A GLOBAL MOVEMENT AND IT’S

ENABLING LAWS

SUBMITTED BY: SUBMITTED TO:

VAISHNAVI SHAH Mr. TOSHAN CHANDRAKAR

A80621520030

BBA.LLB (H)

SEMESTER 8
 ACKNOWLEDGEMENT
First & foremost, I take this opportunity to thank Mr. Toshan Chandrakar sir Faculty,
Taxation law, ALS for allotting me this challenging topic to work on. He has been very kind
in providing inputs for this work, by way of suggestions and by giving his very precious time
for some discussion. Hence, I would like to thank him for all her cooperation and support.
Last but not the least; I would like to thank my friends for having a wonderful debate and
discussion, and hence creating a knowledge base for various aspects of this society as well as
our education.

VAISHNAVI SHAH
A80621520030
Semester-VIII

BBA.LLB (Hons.)
 TABLE OF CONTENTS
Introduction
Extent Of Inequality
Enabling Theories
Loopholes the rich use to minimise tax liablilities
Wealth tax for better tomorrow
Conclusion
INTRODUCTION

Governments should work to promote equality throughout their communities. They should
defend people' rights while also ensuring that institutions are in place to assure the continued
existence of those rights and a dignified living. Building complex facilities necessitates a
substantial budget, which is normally funded by the contributions of all society members. But
what happens when the wealthiest individuals fail to give their fair share? What happens
when they transfer their riches overseas rather than investing in society's pillars? We live it
every day. We live in cultures and nations where the ultra-rich benefit from the system rather
than contribute to it.

“Tax the rich” slogan at the Met Gala to President Biden’s Build Back Better proposal, the
idea of taxing the rich has taken center stage in recent weeks

From slogan to reality it means at least three things: taxing high-income earners, taxing
capital income because most of the income of the super-rich comes from capital income, or
taxing the stock of wealth directly. growing economic inequality is a major concern in most
developing countries and India is no exception. Taxing the rich is not unique to any single
country, including India. In India there is an ongoing debate about wealth
inequality .According to Oxfam, the richest 1% in India own more than 40% of the country’s
total wealth while the bottom 50% share just 3% of it.The latest report from the World
Inequality Lab, based on a hundred years of data from 1922 till 2023, show income and
wealth inequality to be the highest ever now. Fighting inequality is not the same as fighting
poverty. The poverty ratio has been falling in India, but there are people still living
dangerously close to the poverty line or just above it.

Extent of inequality

According to detailed income tax statistics, 6.6% of the population submitted a tax return for
2020-21. However, just 0.68% of the population were effective taxpayers, paying a large
amount of income tax. The wealthiest, who declared an income of more than Rs 1 crore,
constituted 0.016% of the population and accounted for 38.6% of total taxable income.
The higher the income, the greater the opportunity to save and accumulate wealth. As a result,
the 0.016% population own the majority of the country's wealth, with the 0.68% population
following closely behind. So, if wealth is to be redistributed, it will be from the 0.016% to the
lowest 90% of the population who are close to destitution. So, with 300 million unorganised
sector workers registered, 90% earn less than Rs 10,000 per month.
Those opposed to redistribution are safeguarding 0.16% or 0.68% of the population while
opposing the bottom 90% of the country. The discrepancy is substantially larger than
represented above since the country's top 1% possesses significant black incomes and
undeclared wealth both in India and overseas. Before the COVID-19 epidemic, inequality in
India was among the greatest in the world. It reveals that the top 1% owns 51.5% of the
wealth. In comparison, the lowest 60% owns 4.7% of total wealth. This becomes much more
skewed when the black money of the top 1% is taken into consideration.
Inequality is the result the of economic and political system in a country.
Enabling Theories

For India’s new millionaire who is entering the 1%, there awaits quite a beneficial taxation
policy. The absence of taxes on wealth and inheritance mean that it is easier to hold on to
your amassed riches than your annual incomes.
“In theory, India employs several mechanisms that are aimed at taxing the rich. These include
a progressive income tax rate structure, tax on capital gains, tax on gifts, and a surcharge on
income tax on the super-rich,”

 Progressive Income Tax Rate

A progressive tax system is the one where tax rates increase with incremental income.
Taxpayers earning lower incomes are subject to a low rate of tax, with the tax rates increase
with an increase in income. A tax system is said to be progressive when it imposes tax
according to the taxpayer’s ability to pay. The percentage of the tax rate is higher for high-
income earners in comparison to low-income earners. A progressive tax system is built on the
understanding that low-income earners spend a maximum of their earnings towards their
daily expenses or to maintain a basic standard of living. A progressive tax system
reduces income inequality. The system follows the principle of equity. In India, the lower-
income slab (Rs 2.5 to 5 lakh) rate is 5% with a steep jump to 20% for income-earners above
Rs 5 lakh.
  Tax On Capital Gains

Capital gains tax is a tax imposed on the profits realized from the sale of assets such as
stocks, bonds, real estate, and other investments. It is the tax applied to the difference
between an asset's purchase price (or "cost basis") and its selling price.

When you sell an asset for more than you paid for it, you have a capital gain. Conversely, if
you sell an asset for less than you paid for it, you have a capital loss. Capital gains tax is
typically only applied to capital gains, not to the total amount received from the sale.

The tax imposed on capital gains is known as capital gain tax. These taxes are levied when an
assest is transferred by the owners.

Though all capital gains are subject to taxes, the tax treatment for long-term profits differs
from that of short-term gains. Individual taxpayers can employ tax-efficient financial
techniques to decrease their capital gains tax burden.

Here is an example of how it works –

Mr. B purchased a house for Rs. 50 Lakh in July 2004. The full value of consideration in the
financial year of 2016-2017 stood at Rs. 1.8 Crore. The said property was held for over 36
months and was, therefore, deemed as a long-term capital asset. After taking into
consideration the inflation, the cost price was adjusted, and the indexed cost of acquisition
was also taken into account.The adjusted cost of the property was then settled at Rs. 1.17
Crore, which means Mr. B accrued a net capital gain worth Rs. 63 Lakh. After a long-
term capital gains tax rate of 20% was levied on the net capital gain, the tax liability that was
to be paid by Mr. B arrived at a total of Rs. 12,97,800.

Types Of Capital Gains :

There are two types of capital gains –

 1) Short Term Capital Gain Index
Any asset that is held for less than 36 months is termed as a short-term asset. In the
case of immovable properties, the duration is 24 months. The profits generated
through the sale of such an asset would be treated as short-term capital gain and
would be taxed accordingly.

2) Long Term Capital Gain Index

Any asset that is held for over 36 months is termed as a long-term asset. The profits generated
through the sale of such an asset would be treated as long-term capital gain and would attract
tax accordingly.

Assets like preference shares, equities, UTI units, securities, equity-based Mutual Funds and
zero-coupon bonds are also considered as long-term capital asset if they are held for over a
year.

Regulations on Short-Term Gains and Long-Term Gains Taxation

Under Section 80C of Income Tax Act –

The short-term capital gains would attract a tax at the rate of 15% of the investor decides to
sell it within a year.

A long-term Mutual Funds capital gains tax would be charged 10% on profits exceeding Rs.
1 Lakh generated through equity-oriented funds and shares.

The table below shows how the short-term and long-term capital gains taxation in India is
calculated.
 Type of tax Condition Applicable Tax

Long term capital gains tax  Sale of Equity shares 10% over and above Rs 1 lakh

 Sale of units of equity-

oriented mutual fund

others
20%

Short term capital gains tax  When Securities  Normal Tax slab rates
Transaction Tax isn't
applicable  15%

 When STT is applicable

Treatment of Equity and Debt Mutual Funds Capital Gains Tax

Any gains accrued on the sale of equity funds and debt mutual funds are treated
differently.

On or before 1 April 2023

Types of funds

Short term gains Long term gains

 Debt funds At tax slab rates of the individual 10% without indexation or 20% with
indexation, whichever is lower

Equity funds 15% 10% over and above Rs 1 lakh without

indexation

Types of funds Effective 1 April 2023

Short term gains Long term gains

Debt funds At tax slab rates of the At tax slab rates of the
individual individual

Equity funds 15% 10% over and above Rs 1 lakh

without indexation

Gift Tax

In India, income tax is charged on gift transactions. Although there are few exceptions, one
has to pay tax on certain gifts received in India. Even a casual exchange of money between
friends and family members can bring tax incidence on the person receiving the gift.
Introduced in the year 1958 and was abolished in 1998. The government reintroduced it in the
year 2004 under the head "Income from other sources". Receiving or sending gifts can be a
part of money laundering or tax evasion, so the tax officers keep an eye on such transactions
through the details filed under the income from other sources head. Taxation rules on gifts
exchange have been laid down under section 56 (2)(vi) of the Income Tax Act. It states that
any gift received with or without consideration in excess of Rs 50,000 in a financial year will
be added to your income from other sources and taxed according to your slab.

Elligibilty

 Any individual receiving cash gifts exceeding Rs 50,000 in a single financial year will
have to add this income to the gross total income and pay tax accordingly.

 If the gift is received by an individual without any consideration and the fair market
value of such gift is more than Rs 50,000 then the aggregate value will be taxable in
the hands of such individual.
 If the gift is received with consideration but for a value which is less than the
fair market value and the difference exceeds Rs 50,000, the difference in the FMV and
the consideration will be added to the income and taxed accordingly.

Exceptions

1. Gifts received from the blood relatives

2. Gifts received on the occasion of marriage

3. Gifts received as inheritance or through a will

The income from any such gifts will be added to your income from other sources and taxed
according to your slab. You can use any ITR form to report such income and pay tax
accordingly.
 Income Tax Surcharge Rate & Marginal Relief

A surcharge on income tax is an additional tax that must be paid by taxpayers who earn more
than a particular amount. Our government ensures that the wealthiest pay more in income
taxes than the poor through the surcharge provision. It also gives some relief from the fee for
a specific category of taxpayers.

Surcharge on Income Tax

Income tax surcharge is an additional charge payable on income tax. It is an added tax on the
taxpayers having a higher income inflow during a particular financial year.

Surcharge rates for different taxpayers (Current Rates)

There are different rates of surcharge applicable to different taxpayers under the Income Tax
Act, 1961. From 1st April 2023, the highest surcharge rate of 37% shall be reduced to 25%
under the new tax regime.
Surcharge Rates for Individual/HUF/AOP/BOI/ Artificial Judicial
Person

Net Taxable Surcharge Rate on the amount of income tax Surcharge Rate on the amount of
income tax
Income under old tax regime
under new tax regime
Limit

Less than Rs Nil Nil

50 lakhs

More than Rs 10% 10%

50 lakhs ≤
Rs 1 Crore

More than Rs 15% 15%

50 lakhs ≤
Rs 1 Crore

More than Rs 25% 25%

2 Crore ≤ Rs
5 Crore

More than Rs 37% 25%

5 Crore
Loopholes *The Rich* use to minimize tax liabilities

 Tax Havens & Offshore Accounts: To avoid paying taxes in India, wealthy individuals
might create offshore businesses or bank accounts in nations with advantageous tax
legislation. They may use these accounts to evade or delay taxes on their income or
assets.
 Capital Gains Manipulation: Capital gains on the sale of assets such as stocks, real estate,
or enterprises are taxed in India. Taxpayers can control the timing of asset transactions or
employ complicated arrangements to convert taxable profits into non-taxable forms, such
as long-term capital gains, which are taxed at reduced rates or are tax-free.
 Transfer price: Multinational firms based in India may use transfer price manipulation to
move earnings to low-tax jurisdictions or subsidiaries. They may artificially inflate or
deflate prices in transactions with connected firms in order to lower taxable revenue in
India.
 Tax Exemptions and Deductions: The Indian tax rules include a variety of exemptions,
deductions, and incentives to stimulate investment and economic activity. Wealthy
persons may take advantage of these laws by structuring their income or assets to qualify
for favorable tax treatment, such as deducting charitable gifts or investing in certain
instruments.
 Trusts and Family Arrangements: High-net-worth individuals may establish trusts or
family arrangements to hold assets and income, dividing ownership among family
members or legal entities in order to reduce their overall tax obligation. They may also
utilize these entities to transfer money to heirs while reducing estate taxes.
 Misreporting Income: Some taxpayers may simply underreport their income or inflate
deductions on their tax returns to decrease their tax burden, banking on slack enforcement
and insufficient scrutiny from tax officials.
A Wealth Tax For A better Tomorrow

The wealth tax, a financial tool that has the potential to reduce income inequality, is
gaining popularity in a number of nations throughout the world. Argentina, Bolivia, Chile,
Peru, and the United States are among the nations that have imposed or are contemplating
instituting a wealth tax. In light of this worldwide trend, it is worthwhile to investigate the
prospect of restoring a wealth tax in India, a nation with a history of wealth tax
implementation and a continuing issue of elite wealth concentration. Throughout the
years, India's wealth tax system underwent several modifications to adapt to the changing
economic landscape. In 1991, the country adopted liberal economic policies, prompting
the WTA to cover only unproductive and idle assets. However, the tax faced numerous
administrative challenges, such as widespread litigation, inadequate tax yield, and high
costs of administration. In 2015, the Indian government abolished the wealth tax, citing
the aforementioned challenges and the need for a more efficient taxation system. The
wealth tax was replaced by a 2% surcharge on the wealthiest individuals with annual
taxable income exceeding Rs 1 crore.

Reasons for Reintroducing Wealth Tax in India

 Addressing Wealth Inequality:

India's wealth disparities are a major concern. According to the World Inequality
Database, the richest 10% of India's population controls 65% of the country's wealth,
 while the lowest 10% owns only 6%. The wealth tax has the potential to redistribute
wealth and alleviate national inequality. A progressive wealth tax would ensure that
the wealthy contribute a greater proportion of their money to public services and
social welfare programs, therefore increasing economic equality.

 Funding Public Services And Infrastructure

India's public infrastructure and services need massive investment to ensure quality and
accessible for all inhabitants. A wealth tax might provide much-needed cash for
investments in education, healthcare, and other critical public services that improve the
population's capacities and create job possibilities. This cash might also be used to
improve infrastructure, such as roads, bridges, and public transit systems, therefore
stimulating economic growth.

 Encouraging Productive Investment

A wealth tax can potentially encourage wealthy individuals to invest their assets in
productive sectors of the economy instead of hoarding wealth in unproductive assets. This
would generate employment opportunities, increase economic growth, and reduce wealth
inequality in the long run.

Reintroducing a wealth tax in India could be an effective measure to address the country's
wealth inequality and generate revenue for public investment. However, the government
must carefully consider the challenges and potential consequences of implementing such
a tax. By adopting a well-designed wealth tax system, India can work towards achieving
greater economic equality, promoting productive investment, and ensuring a better quality
of life for all its citizens.
Global stance on inequality

US President Joe Biden in March 2023 said, “It is about time that the super wealthy start
paying their fair share.” He elaborated that 55 of the biggest corporations pay zero federal tax
on their $40 billion of profits. Billionaires pay an average of 8% of federal tax, which is less
than what teachers and firefighters pay. Biden, no dyed in the wool leftist, is a leader of the
capitalist world. The super-rich globally have also been saying that if capitalism is to survive,
the rich have to pay more taxes.

Conclusion

It is sometimes stated that the rich become wealthy by their own hard work, and that no one
should take advantage of their money. However, impoverished labourers and farmers might
be observed working even harder in harsh conditions. So it's not a case of hard workers vs
lazy folks. Who receives how much depends on the system, education, opportunity, and so
forth. Many wealthy people have made their fortunes by cronyism, cutting shortcuts, and
breaking therules. Finally, it is not suggested that riches should be taken by the government
and distributed to the poor. That only happens during a revolution, when civilization
collapses. Taxation can create a more fair playing field. Social justice demands a level-
playing field for all in society. That requires high-quality education and health for all and a
generation of productive employement for all.