Tax experts have warned the government not to increase income tax surcharges on high earners or bring back a wealth tax in the Union Budget 2026-27, saying
such steps could drive wealthy taxpayers out of India and hurt investment and job creation.
Currently, people earning more than Rs 50 lakh a year pay an extra surcharge on income tax. Those earning Rs 50 lakh to Rs 1 crore pay a 10 per cent surcharge, Rs 1–2 crore pay 15 per cent, and Rs 2–5 crore pay 25 per cent. Under the new tax regime, individuals earning above Rs 5 crore pay a 25 per cent surcharge, while under the old regime, the surcharge is 37 per cent, PTI reported.
Economists estimate that recent GST rate cuts and lower income tax collections could cost the government around Rs 2 lakh crore this year. This has led to discussions on whether the government may need to raise more money in FY27 to fund higher spending on defence and other priorities.
Also Read: What Renewable Energy Players Want From Budget 2026
Risk of high earners leaving India
PwC & Co LLP Partner Amit Rana said while taxing the rich more is based on fairness, very high taxes can backfire.
“We have a pretty good slab, wherein at the highest level you pay 42 per cent, at the lowest level you pay almost zero, even at reasonable income levels. But, when you start making it very prohibitive, you run the risk of high-income earners wanting not to be in India, and that is possible in the world today,” Rana told PTI.
He added that wealthy individuals play a major role in building industries and creating jobs, so tax policy needs to be balanced.
EY India Tax Partner Surabhi Marwah also warned that higher surcharges or a return of wealth tax could push rich individuals to move their money or even relocate abroad.
“Tax uncertainty and steep effective rates may play a role in decisions around capital relocation and residency. Stability and predictability in the tax regime may be as important as the rates when the objective is to retain capital and talent,” she said.
Marwah pointed out that wealth tax was scrapped in 2015 because it raised very little money compared to the effort needed to administer it. She said surcharges are usually simpler and lead to fewer legal disputes than wealth taxes.
“With the government now having access to robust data trails through GST, CRS agreements and other systems, policymakers may continue to see surcharge adjustments as a relatively simpler option compared to asset-based valuation regimes,” she said.
Wealth tax seen as inefficient
Shardul Amarchand Mangaldas & Co Partner Gouri Puri said higher taxes could push investors and entrepreneurs away from India.
“Capital flight is a genuine risk since mobile families can re-domicile to other jurisdictions with lower rates. There is always global competition to keep tax regimes investor-friendly, and harsher taxes in India may discourage investment and push capital away,” she said.
She added that a wealth tax would also increase compliance costs and administrative burden.
Deloitte India Partner Alok Agrawal said the government had already reduced the highest surcharge in Budget 2023 under the new tax regime.
“This applied from April 1, 2023, and was applicable only under the new tax regime. So, it seems unlikely that the government would hike this once again within a short span of three years,” he told PTI.
On wealth tax, Agrawal said such taxes have never generated much revenue compared to the cost of running them.
“The government’s focus has instead been on improving tax collections through more robust enforcement by leveraging technology and information-sharing with other countries,” he added.
