Tax Reforms

Levying the Wealth tax to reduce income inequality


From UPSC perspective, the following things are important :

Prelims level: Wealth tax

Mains level: Income inequality, Wealth tax and its necessity

Wealth tax


  • The discourse on efficient, effective and equitable public spending often takes us into the realm of limited resources facing competing demands. India definitely needs to widen its revenue collection as well as base. In this context its time to consider a wealth tax.

Click and get your FREE Copy of CURRENT AFFAIRS Micro Notes

What is wealth tax?

  • Wealth tax is a direct tax unlike the goods and services tax or value-added tax, can take several forms, such as property tax, inheritance or gift tax and capital gains tax.
  • It aims to reduce the inequalities of wealth.
  • It is based on the market value of assets owned by a taxpayer and charged on the net wealth of super rich individuals.

Wealth tax

Wealth Tax in India

  • Abolished wealth tax: The government abolished wealth tax as announced in the budget 2015. In its place, the government decided to increase the surcharge levied on the ‘super rich’ class by 2% to 12%. (Super rich are persons with incomes of Rs.1 crore or higher and companies that earn Rs.10 crores or higher).
  • Abolished to simplify tax structure and discourage tax evasion: The abolition was a move to do away with high costs of collection and also to simplify the existing tax structure thereby discouraging tax evasion.
  • No wealth tax at present: India presently does not have any wealth tax i.e., a tax levied on one’s entire property in all forms. It did not impose a one-time ‘solidarity tax’ on wealth in post-covid budgets that could have generated resources for essential public investment.

What is the need for levying a wealth tax?

  • High inequality: India’s top 10% population owns 65% of the country’s wealth, while the bottom 10% owns only 6%, according to the World Inequality Database, 2022.
  • Massive accumulation of wealth in a few hands: A small section of people has access to a large share of economic assets and resources that remain almost completely untaxed and thus unavailable for public allocation.
  • Capital gains tax has limited base: Capital Gains tax exists in India, but applies only to transactions and hence is limited in its base.
  • Wealth largely depends on inheritance and privilege: Wealth, much less than even income, has little to do with one’s education, merit or efforts; it is largely dependent on inheritance and opportunities that come with the advantages associated with belonging to one of India’s privileged classes and castes.
  • India does not have inheritance tax: India scrapped its estate duty in 1985 and has no inheritance tax.
  • Almost entirely exemptions on gift tax: Although the receipt of gifts is subject to income tax in the beneficiary’s hands, it has various exemptions; it is almost entirely exempt if received from within the family, including the extended family of self and spouse. These exemptions shrink the base significantly, as most accumulated wealth is acquired through family, and that remains outside the gift tax’s ambit. Given the cultural context of wealth inheritance, some exemptions make sense, but upper thresholds can be easily added to make it more effective.

Wealth tax

Comprehensive PoV: Why wealth tax is necessary at present economic condition

  • Wealth of rich doubled during the pandemic but not channelised well to create productive resou: An Oxfam report has highlighted how India’s richest doubled their wealth during the pandemic. This happened for a variety of reasons. despite facing grave financial and economic challenges, has no means to convert any of this growing wealth into productive resources that can generate employment opportunities and push up the incomes of multitudes, which in turn can drive demand for goods something that is needed to counter an economic drag-down.
  • There is no sufficient increase in private investment: The government lowered the corporate tax rate significantly from 30% to 22% in 2019-20, which has continued despite the economic crises caused by the pandemic. However, this did not elicit much private investment. Obviously, there is something else at work, and one cannot assume that accumulated wealth in private hands will necessarily be invested in the domestic economy.
  • Not only investment is important but also the right application is important: It is not only investment that is important, but also where that investment is going and whether it is creating employment opportunities for the youth.

Present status and economic projections

  • Data on youth unemployment: Data from diverse sources show high unemployment rates during May-July 2022 for the youth: 28.3% in the 15-24 age group and an even higher 43.3% for the 20-24 age-group.
  • Likely global recession overhead: The likelihood of a global recession and the related layoffs being announced by corporate giants will make the situation worse.
  • Jobless growth and wealth inequality: The recent economic growth experienced in India, especially in the post-covid recovery phase, has largely been jobless growth and can further deepen both income and wealth inequalities.
  • Economy cannot afford to have such high level of youth unemployment: No economy can afford to have such youth unemployment rates for long without adversely affecting economic growth and social cohesion.

Way ahead

  • A number of Latin American countries, including Argentina, Peru and Bolivia, have either introduced or are introducing a progressive annual wealth tax levied on the wealth gains of each year or a one-time covid ‘solidarity’ tax.
  • There is no reason why India cannot do so too. This is the right time to introduce a progressive wealth tax along with other fiscal steps that can directly reverse the trend of growing inequalities in the country.


  • India needs a shift in its fiscal policy, as suggested by a number of economists, to adopt measures that create employment opportunities and in turn drive demand for products made by small and medium level producers. This would also push up growth while not necessarily widening inequalities.

Mains question

Q. What is wealth tax? Why wealth tax abolished? Considering the present economic situation Discuss the need to levy wealth tax in India?

(Click) FREE1-to-1 on-call Mentorship by IAS-IPS officers | Discuss doubts, strategy, sources, and more

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Notify of
Inline Feedbacks
View all comments


Join us across Social Media platforms.

💥Mentorship New Batch Launch
💥Mentorship New Batch Launch