September 13, 2021

Finance, big technology companies and local governments are filing a legal challenge to a new tax law which they say is unfair and discriminatory.

The tax law will impose a 5 per cent levy on taxable income over Rs. 5 lakh in the coming three years, but the biggest beneficiaries will be the top 10 per cent of income earners, said Amit Jha, president of the National Council of Accountancy.

This is a massive tax cut for the top 5 per and top 10 percent, and a huge tax hike for the bottom 90 per cent, he said.

The biggest beneficiaries of the 5 per per cent rate are top 10 lakh income earners and the top 1 lakh, the new draft law says.

The new law would have a direct impact on the country’s economy, but it is unclear whether this will be offset by a tax cut elsewhere, Mr. Jha said.

India’s big four financial services firms are challenging the new law in a court case. 

The banks are challenging it on grounds that it would be unfair to tax them at the lower end of the income scale, but not at the top.

They are also challenging the tax regime, saying the government failed to adequately consult the public and to provide adequate transparency in the new rules.

The banks argue that the new tax rules are unfair, and not inclusive of capital gains and dividend tax exemptions.

This is why we are challenging this unfair tax, Mr Jha told Reuters.

The banks are also seeking a stay on the law in the Supreme Court.

The banks say the new levy is disproportionate to the capital gains tax exemption and is unfair on the tax base of middle income earners. 

They also argue that it will impact the bottom 60 per cent and top 90 per of income tax, which is not reflective of the wealth of the country.

The Finance Ministry is currently considering whether to amend the draft law.

The finance ministry is also expected to issue a report on the impact of the new regulations, which could be released on the same day.

The finance ministry did not immediately respond to a request for comment.

Mr. Jhatra said that as long as the government does not address these issues, it will likely go ahead with the law.