The Government of India levies income tax at slab rates ranging between 0 and 30 per cent with a surcharge (up to 25 per cent) in addition to levying a 4 per cent health and education cess.
Effectively, the maximum rate of income tax on the highest income bracket stands at 39 per cent now.
In Budget 2023, the highest surcharge was slashed to 25 per cent from 37 per cent. Prior to this, the maximum marginal rate of tax for taxpayers in the highest tax bracket stood at 42.74 per cent before it was brought down to 39 per cent.
Let us understand where our income tax rates stand in comparison to those of developed nations such as the US and the UK. When we consider the tax for the highest income bracket, India’s tax rate is higher than that of the US but lower than that of the UK.
Income tax in developed nations:
USA: The American government imposes a maximum income tax rate of 37 per cent on taxpayers barring long-term capital gains (LTCG) and qualified dividends. Other rates of tax range between 10 per cent and 35 per cent.
The lowest tax rate is 10 per cent while the higher tax rates are 12 per cent, 22 per cent, 24 per cent, 32 per cent and 35 per cent.
UK: The British government levies income tax in four bands. The highest is 45 per cent while the other three bands are 0 per cent, 20 per cent and 40 per cent.
The basic tax rate is 20 per cent for income up to £37,700 after allowances. A higher tax rate of 40 per cent is levied on income after allowances between £37,701 and £1,25,140.
And those taxpayers who earn above £1,25,141 have to pay 45 per cent income tax.
Australia: Australia’s tax rate ranges between 16 per cent and 45 per cent based on gross income. There is zero tax on income up to $18,200. Between $18,200 and $45,000, the rate is 16 percent.
As the income rises and ranges between $45,000 and $1,35,000, the rate of tax rises to 30 per cent.
The tax rate rises to 37 per cent for income between $1,35,000 and $1,90,000. For people earning above $51,638, the rate of tax is 45 per cent.