Higher I-T Cess Leaves C-suites a Worried Lot

The increase in effective tax rate to 43% for those earning Rs 5 crore and more has spread disquiet in India Inc’s Csuite, raising the possibility of salary reviews, as the rise in tax will invariably push senior compensation levels higher with top talent demanding some offset, said HR heads.

As per the latest records available, 144 executives of BSE 500 companies on average earned Rs 11.4 crore annually. Employee stock option plans (Esops) represent a significant proportion of compensation for several executives, said tax experts.

The budget raised the tax surcharge on incomes between Rs 2 crore and up to Rs 5 crore to 25% from 15%, resulting in a maximum marginal tax rate of 39%, up from 35.88%. For those with incomes of Rs 5 crore and more, the surcharge was raised to 37% from 15% for a 42.74% highest applicable tax rate, the most since 1992, and also up from 35.88% before the change.

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A senior India Inc CEO, who did not want to be identified, explained the math to ET: “Take the example of someone earning Rs 10 crore as salary with, say, 25% of it comprising Esops. Currently, about 35% will go towards tax, about 30% will be future cash flow, and what remains will be about 35%. Under the new scenario, what will remain is about 28%. This means the individual will lose 20% of take-home pay.”

Source: Economic Times

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