Author: Joyita Ghosh, O. P. Jindal Global University
Introduction
India is no stranger to inequality. While economic growth has lifted millions out of poverty, wealth concentration at the top has skyrocketed. Today, a tiny fraction of Indians control a massive share of the country’s wealth, while the majority struggle with rising costs and limited opportunities. Given this reality, the idea of bringing back the Wealth Tax, which was scrapped in 2015, has resurfaced.
Supporters argue that taxing the ultra-rich could help fund welfare programs and reduce inequality, while critics warn that it might push wealthy individuals to move their money abroad, hurting investment and economic growth. So, should India reintroduce wealth tax? Let’s break it down.
What Was the Wealth Tax and Why Was It Scrapped?
India had a wealth tax for nearly six decades, introduced through the Wealth Tax Act, 1957. It applied to individuals, Hindu Undivided Families (HUFs), and companies that owned assets above a certain limit. The tax covered luxury assets like real estate, jewellery, high-value cars, and even cash holdings beyond a threshold.
However, in 2015, the government abolished it for three main reasons:
1. It Collected Too Little Money – Despite being aimed at the super-rich, wealth tax barely contributed to government revenues. In 2013-14, it brought in just ₹1,008 crore—a drop in the ocean compared to India’s total tax collections.
2. It Was Hard to Enforce – Valuing assets like real estate, artwork, and stocks every year led to frequent disputes, increasing the cost of administration.
3. A Simpler Alternative Was Found – Instead of wealth tax, the government introduced a surcharge on individuals earning more than ₹1 crore, which was easier to collect and enforce.
Given these challenges, does it make sense to bring back a wealth tax?
Why Some People Want Wealth Tax Back
1. Growing Wealth Inequality
India’s wealth gap is widening at an alarming rate. According to the World Inequality Report 2022, the richest 1% of Indians own more than 40% of the country’s wealth, while the bottom 50% have less than 10%. This means that while millions struggle to afford healthcare and education, a small group enjoys extravagant lifestyles without proportionate taxation.
A wealth tax could help bridge this gap by making the ultra-rich contribute more to public welfare.
2. More Revenue for Public Services
Post-pandemic, India’s government has spent heavily on welfare programs like free food schemes, health insurance, and infrastructure projects. However, funding these initiatives is a challenge. A well-structured wealth tax could generate billions in additional revenue, which could be used for education, healthcare, and poverty reduction.
3. Stopping Tax Loopholes for the Super-Rich
Many high-net-worth individuals avoid paying high income taxes by structuring their wealth through trusts, offshore accounts, and tax havens. Since wealth tax is based on net assets rather than income, it could ensure that those who accumulate massive wealth contribute their fair share.
4. Global Examples Show It Can Work
Countries like Switzerland, Spain, and Norway have some form of wealth tax, and they’ve made it work by keeping the rates low and ensuring strict enforcement. Spain, for instance, levies a progressive wealth tax on net assets above a certain threshold, contributing significantly to its social spending. India could learn from these models and create a wealth tax that avoids past mistakes.
Why Others Oppose Wealth Tax
1. It’s Hard to Implement
One of the biggest problems with wealth tax is that it requires accurate valuation of assets every year. This is tricky because:
• Real estate prices fluctuate and can be difficult to assess fairly.
• Art, jewellery, and stocks require expert valuation, which increases administrative costs.
• Disputes over asset valuation can clog courts and lead to tax evasion.
2. Risk of Capital Flight
If India imposes a wealth tax, the ultra-rich might simply move their money abroad or shift their residency to tax-friendly nations like Dubai or Singapore. This would reduce the effectiveness of the tax and could lead to lower investment in India.
3. The Rich Are Already Taxed Heavily
India has some of the highest tax rates for top earners. Individuals earning over ₹5 crore per year already pay an effective tax rate of 42.74% (including surcharge and cess). Critics argue that instead of taxing the rich even more, the government should focus on improving tax compliance and closing loopholes in existing laws.
4. It Might Discourage Entrepreneurship
If a wealth tax is too high, it could discourage business owners from reinvesting profits into their companies. This could slow down economic growth, reduce job creation, and make India less attractive for investors.
Can India Design a Better Wealth Tax?
If India decides to reintroduce wealth tax, it must learn from past mistakes and design a system that is fair, efficient, and easy to enforce. Here’s how it could work:
1. Set a High Exemption Limit
Instead of taxing all wealthy individuals, the government could set a high threshold—say, ₹50 crore or ₹100 crore in net assets—to ensure that only the ultra-rich are affected.
2. Keep the Tax Rate Low
A small tax of 1%–2% on extreme wealth would be easier to enforce and less likely to cause capital flight.
3. Focus on Luxury and Idle Assets
Instead of taxing all assets, the wealth tax could target luxury items and non-productive assets, such as:
• Private jets, yachts, and high-end luxury cars
• Expensive jewelry and artwork
• Large real estate holdings beyond primary residences
• Unused land or property held purely for investment
By excluding productive assets like business investments, startups, and agricultural land, the tax would ensure that it does not discourage economic growth.
4. Simplify Valuation Methods
One of the biggest challenges with wealth tax is asset valuation. India could adopt a standardized valuation system to avoid disputes. For instance:
• Real estate could be taxed based on government circle rates rather than fluctuating market prices.
• Financial assets (stocks, bonds, etc.) could be assessed based on declared market value.
• Gold and jewelry could be taxed above a specific weight limit rather than requiring detailed valuations every year.
5. Strong Enforcement & Anti-Evasion Measures
A major flaw in past wealth tax laws was poor enforcement. If a new tax is introduced, India must ensure strict reporting requirements, such as:
• Mandatory wealth disclosures for ultra-high-net-worth individuals (UHNWIs).
• Penalties for hiding assets in offshore accounts.
• Technology-driven monitoring using AI and data analytics to track wealth accumulation.
Alternative Solutions: Are There Better Ways to Tax the Rich?
If a wealth tax is too difficult to implement, India could explore other ways to make the super-rich pay their fair share:
1. Inheritance Tax (Estate Duty):
India had an inheritance tax (estate duty) until 1985, which taxed wealth passed down after death. Many countries, including the US, UK, and Japan, still have it. Bringing it back with a high exemption threshold (e.g., ₹50 crore+) could ensure only the wealthiest pay.
2. Higher Capital Gains Tax on Luxury Investments:
Instead of taxing all wealth, India could increase capital gains tax on luxury properties, high-value stock holdings, and speculative assets like cryptocurrency. This would ensure that those who profit from asset appreciation contribute more.
3. Luxury Consumption Tax:
A special tax on luxury goods, high-end real estate, and extravagant services (private jets, premium club memberships, designer brands, etc.) could make the rich pay more without targeting wealth directly.
Conclusion: Is Wealth Tax the Right Solution for India?
The idea of a wealth tax is attractive—it seems fair that the richest individuals contribute more in a country where millions still struggle with basic needs. However, past experience shows that implementing and enforcing it is easier said than done.
If India decides to reintroduce a wealth tax, it must be carefully designed to avoid old pitfalls. A low-rate, high-threshold tax targeting only extreme wealth and luxury assets, combined with strong enforcement, could work.
However, India could also achieve similar goals through alternative means, such as inheritance tax, higher capital gains tax, or luxury consumption taxes. Whatever approach the government takes, the key is ensuring fairness without discouraging investment or entrepreneurship.
Ultimately, the question is not just “Should India bring back the wealth tax?” but “What is the best way to make the ultra-rich contribute more without harming economic growth?” The answer lies in smart, well-planned policies that strike a balance between fairness and practicality.
FAQS
1. What is a wealth tax?
A wealth tax is a tax levied on the net assets of individuals, businesses, or families above a certain threshold. It applies to accumulated wealth, including real estate, jewelry, stocks, and other high-value assets.
2. Did India ever have a wealth tax?
Yes, India had a wealth tax under the Wealth Tax Act, 1957, which was abolished in 2015 due to administrative difficulties and low revenue collection.
3. Why was the wealth tax abolished in India?
The government removed wealth tax because:
• It contributed very little to tax revenue.
• It was expensive and difficult to administer due to asset valuation challenges.
• A surcharge on high-income earners was seen as a more effective alternative.
4. Can India bring back the wealth tax?
Yes, the government can reintroduce wealth tax through a new law or by amending existing tax laws. However, it would need to address past challenges like enforcement and valuation.
5. How do other countries tax wealth?
Countries like Switzerland, Spain, and Norway have some form of wealth tax. Many others, like the US and UK, impose inheritance tax or higher capital gains tax instead.
6. Who would be affected if wealth tax is reintroduced?
If structured correctly, a new wealth tax could apply only to the ultra-rich (e.g., those with net assets above ₹50 crore or ₹100 crore), ensuring that middle-class and lower-income groups are not affected.
7. What are the alternatives to wealth tax?
Instead of a wealth tax, India could:
• Introduce inheritance tax (estate duty) on large inheritances.
• Increase capital gains tax on luxury properties and high-value stock holdings.
• Impose luxury consumption taxes on expensive goods and services.
8. Will a wealth tax lead to capital flight?
Possibly. If the tax is too high, wealthy individuals may move their assets to tax-friendly countries like Dubai or Singapore. This is why careful design and global coordination are necessary.
9. How can India ensure effective wealth tax enforcement?
To make it work, India could:
• Use AI and data analytics to track wealth accumulation.
• Mandate strict asset disclosure for the ultra-rich.
• Impose penalties for non-disclosure and tax evasion.
10. What is the best way forward?
India must balance fair taxation with economic growth. A well-designed wealth tax, inheritance tax, or targeted luxury tax could ensure the rich contribute more without harming investment and entrepreneurship.
