Finance Minister Nirmala Sitharaman on Saturday said that not more than 5,000 people come under the super rich category, for whom the government has proposed higher tax in this Budget. Now, it is anybody’s guess if the government knew that the proposed changes would not only apply to individuals but also to HUFs, trusts and association of persons (AOPs).
Since AIFs are trusts and its category III variant (which includes long only funds and long short funds) will have to pay tax at marginal rate i.e. 42.7% on gains made at a fund level. Further, after an investor receives redemption proceeds, she will have to pay capital gains tax.
Nevertheless, if the number of super rich individuals quoted by the minister is true, does not it raise question mark on AIF industry’s success in India? After all, having a sizable super rich individual base is key to the growth of AIFs.
Experts said that the number cited by the government is an official one and is under-reported.
Further, Jay Shah, Co-Founder of Onetreehill.in and former fund manager at Edelweiss Alpha Fund, said that AIF industry’s growth is not dependent on the number of individuals only. Entities such as corporates and individuals who have formed a partnership are also major participants in the AIF industry.
Even the number of super rich individuals seem to be much more than 5,000 if we look at other government records and wealth reports by private wealth firms.
In February this year, Central Board of Direct Taxes (CBDT) said that over 1.5 lakh persons have declared annual income above Rs.1 crore so far in assessment year 2018-19. CBDT Chairman Sushil Chandra had added that his department suspects under declaration.
“We see that GDP is growing, consumption is growing, all five star hotels are full but the number of persons filing income of more than Rs 1 crore, it is really pathetic.”
A number of wealth reports also suggests that the number of individuals filing for income tax does not match up with the consumption or investment pattern.
New World Wealth, a global market research group, in a report released in June 2018 noted that there are approximately 3.3 lakh HNWIs and 20,700 multi-millionaires in India. The survey considers individual with net assets of USD 1 million or more as an HNWI, while those having net assets above USD 10 million were multi-millionaires.
A survey by Credit Suisse in 2018 also showed similar results. It noted that, in India, the total number of individuals with wealth over USD 1 million stands at 3.43 lakh. The study also said that India has 3400 ultra-high net worth individuals, who has net worth above USD 50 million.
Suresh Sadagopan said that even the number reported by these surveys is underreported. There are individuals who do not file tax returns as their underreport their income and assets. Bringing such investors into the organised economy will be the game-changer for the economy.