Earning Rs 12 lakh? Well, you are rich, and can pay more tax

This may be a scary bit of news, especially when the government is toying with the idea of taxing the super rich.

Statistically, if you are earning Rs 12.77 lakh per annum in India, you are at least rich, if not super rich by your own definition of the term.

In recent weeks, some of the economists the government listens to have been talking of raising taxes for the rich. The key question is what level of income makes you rich enough to be taxed at a rate higher than 30 percent (which is closer to 34 percent after surcharge and cess). The Rs 12.77 lakh figure, according to a Business Standard report, has been arrived at by India’s former chief statistician Pronab Sen.

[caption id=“attachment_582003” align=“alignleft” width=“380”]  Statistically, if you are earning Rs 12.77 lakh per annum in India, you are at least rich, if not super rich by your own definition of the term. Reuters[/caption]

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This cut-off has been arrived at by applying the recent formula used by the US to increase taxes for those with incomes above $400,000 a year and couples with above $450,000.

The BS report says in the US context, these new cutoffs were arrived at as they are 3.5 times the per-household gross domestic product.

The number crunching in the BS report is as follows: the size of the Indian economy in 2011-12 was Rs 89.8 lakh crore and the country had 246 million households. The per household annual income derived from this would be Rs 3.65 lakh. Three-and-half times this number means Rs 12.77 lakh.

The report says many other economists also agreed to this figure.

Shocking this is, especially since Finance Minister P Chidambaram has been an innovative taxman.

But one could take heart from the fact that the UPA may not take a step that could risk distancing its middle class in an election year.

And moreover, the UPA most probably is eyeing a Robin Hood-like image, which would mean the real super rich will be taxed to serve the middle and lower classes.