Why India’s super-rich pay less tax and get away with it

Few in India would be shocked that Indian-origin billionaire Lakshmi Niwas Mittal, who lives in the UK and is a tax resident of Switzerland, has declared to flee to Dubai – a low-tax jurisdiction – as the UK’s Labour-led UK government prepares to present its budget on Wednesday (November 26).

Chancellor of Exchequer Rachel Reeves had earlier indicated that a higher tax on the wealthy was very much in her agenda (“part of the story”).

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Meanwhile, many of the UK’s millionaires have come forward to tell the chancellor that they are willing to pay more tax. Nothing of the sort can be expected in India.

Suppressing income, dodging tax

Indians would rather take Mittal’s declaration in their stride. Here is why.

In the past few weeks, they have been flooded with the news of more and more properties of one of their super-rich, Anil Ambani, and his firms being seized – lands and buildings. The Enforcement Directorate (ED) keeps announcing such seizures for alleged money laundering and other malfeasance, adding up to Rs 8,977 crore at the last count (November 20, 2025).

He is the same Anil Ambani who had told a UK court in February 2020 that his net worth was zero in a case involving non-payment of over $700 million loans to Chinese banks, for which he had reportedly given a personal guarantee too.

At the time, India’s largest circulating English newspaper broke the news with this headline: “Anil Ambani tells UK court his 'net worth is zero' despite fleet of cars, private jet and yacht”. A year later, another prominent national daily ran a similar headline after investigating the “Pandora Papers”: “What ‘bankrupt’ Anil Ambani didn’t tell: his $1.3-billion web of offshore firms”. None of these reports had mentioned his and his firms' lands and buildings that the ED has seized.

During the 2024 general elections, Rajeev Chandrasekhar, a former business tycoon, a central minister then and now the BJP’s Kerala unit chief, declared a taxable income of Rs 680 in 2021-22, in his election affidavit. It led to multiple complaints for allegedly giving misleading information, but Chandrasekhar countered those by saying his taxable income had dipped in 2021-22 to Rs 680 due to COVID-19.

Indian super-rich are, like their counterparts elsewhere in the world, don’t really like paying tax. It has become an annual ritual for newspapers to scream that thousands of Indian dollar millionaires are fleeing India to avoid paying tax to Dubai and other tax havens.

But many super-rich Indians don’t. They find ways to pay little tax by suppressing their incomes.

The wealthier the Indian, the less tax they pay

In 2023, Prof Ram Singh, Director of the Delhi School of Economics, who joined the RBI’s Monetary Policy Committee (MPC) as a member in October 2024, revealed why and how.

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Prof Singh’s study, “Do the Wealthy Underreport their Income?”, was published in January 2023, making many shocking revelations. Some of those are:

1. The wealthier the individual or the family, the lesser is reported income relative to wealth.

2. On average, a 1 per cent increase in family wealth is associated with a decrease of more than 0.5 per cent in the reported income as a ratio of wealth.

3. The wealthiest 5 per cent of families reported incomes that were just 4 per cent of their wealth.

4. Total income reported by the wealthiest Forbes list families is less than 0.6% of their wealth.

5. For the wealthiest 0.1 per cent, their total reported income adds up to less than 2% of their wealth.

6. For at least 80 per cent of the wealthiest 0.1 per cent, their capital income goes unreported in the income tax returns. For the Forbes-listed 100 families, more than 90 per cent of the capital returns do not figure in their reported incomes.

7. The tax liability of the wealthiest 0.1 per cent and the Forbes-listed families is less than one-tenth of their capital income.

8. Tax paid by these groups relative to their wealth is smaller than the relative tax liability for middle-wealth groups.

9. Individuals exposed to greater media and civil society scrutiny report relatively high incomes.

10. Total income reported by the bottom 10 per cent of families amounts to more than 188 per cent of their wealth.

The “missing” income of the super-rich reduces their tax liability "to a mere 1% of their wealth." The study used the affidavits filed by election contestants, the Forbes list of billionaires and the Indian Tax Department’s tax return (ITR) data for its analysis.

India’s regressive tax regime at the root

It isn’t that the income of the wealthy Indians is less (or that their wealth is entirely inherited). The reasons are different.

In any case, the study found “income-wealth ratios reported by wealthy Indians seem to be inexplicably low” – that of “the wealthiest 20% is less than a third of the national average”.

It flagged various methods used to suppress incomes.

1. Lion’s share of the wealthy group’s total income comes from capital income; to minimise tax liability, “they transfer only a tiny fraction…to their personal accounts”, thus the actual income “goes unreported” and “untaxed.”

2. Wealthy groups in the election affidavits (those who have fought elections) “hold most of their wealth as equity, non-agricultural land, and commercial properties” – which “enables owners to manipulate the split of the capital income between what is required to be reported and what can go legally unreported”.

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Indian tax laws are a great help for the super-rich. For one, capital gains are treated as “unrealised” unless they are exchanged or sold – hence, neither taxable nor required to be reported in the ITRs. Similar considerations lead to “manipulate other forms of capital income”, like dividends, as a consequence of which “most of the equity income of the wealthy groups goes unreported in the form of undistributed profits and unrealised capital gains”. So is the case with income from “non-agricultural land and commercial properties”. Agriculture is not taxed under the Income Tax Act.

Prof Singh’s conclusion: Indian tax regime is “regressive” (a) vis-à-vis total income as opposed to the income reported in the ITRs and also (b) vis-à-vis wealth.

Central govt against taxing the rich

But don’t expect any change in Indian tax laws any time soon.

In the 2015 budget, then Finance Minister Arun Jaitley abolished wealth tax for yielding too little with higher administrative costs. Instead, he proposed a 2 per cent “additional surcharge” on taxable income of over Rs 1 crore, which he later withdrew as protests from the super-rich mounted.

In December 2024, when the demand for ‘billionaire tax’ was in the air, Chief Economic Advisor Anantha V Nageswaran issued a stern warning: “Taxing capital less may not make them invest, but taxing capital more will drive away capital. It's easy to drive capital out, but it is a lot harder to bring it back in.”