‘Highways will build themselves. Schools will run on vibes. The defence system is strong enough on its own. And potholes? They’ll fill themselves.’
It’s a familiar joke every tax season and a reminder of how many high-income individuals feel about tax liabilities. Jokes aside, for HNWIs, tax planning transcends duty and becomes an exercise in strategy and financial hygiene.
For this bracket, the stakes are much higher, because the moment your income exceeds INR 50L, it’s surcharge territory, where 10% taxes are imposed on income between INR 50L and INR 1Cr, 15% on INR 1-2Cr, and an income above INR 2Cr warrants you 25%, and even 37% at higher ends. So, essentially, someone earning INR 2.5Cr under the old regime could be liable to pay more than INR 85L in taxes!
Now comes the big question. With the new tax regime now the default from FY25 onward, which one, old or new, is right for you? This choice could shift your tax liability by lakhs.
The old regime works best if you can claim high tax deductions, say home loan interest, or HRA. These can lower your tax liability by INR 2-3L on an INR 75L income. The new regime, while deduction-free, offers lower slab rates, capping surcharges at 25%, making it ideal for HNWIs with portfolios heavy on dividends and capital gains. For someone earning INR 3Cr with INR 1.5Cr in dividends, the new regime could spell over INR 10L in tax savings.
One criminally overlooked aspect of taxation is wealth transfer. Gifts exceeding INR 50,000 from non-relatives are taxable, and capital gains from gifted assets are clubbed with the benefactor’s income. Clarity becomes critical when planning wealth transfer, whether it’s through private family trusts or even a registered will with periodic nominee checks, to ring-fence wealth, manage tax, and ensure smooth succession.
And finally, some hacks beyond the regime choice and succession planning include timing exits, switching to fixed-income strategies, tax-loss harvesting, splitting incomes, and capital gains deferral.
How?
Suppose you earn INR 1.2Cr annually, rebalance your debt exposure, and contribute to NPS. And because the NPS contribution isn’t taxable, congratulations on saving up to INR 8-10L!
And if you are still unsure of your current tax strategy, let’s review it together, because financial discipline and hygiene are tenets we at YFS swear by!