"... One need not disturb the structure of income tax system as it is now. But add a surcharge for income above particular level. I believe as we go along, we need to raise more revenues and the people with larger incomes must be willing to contribute more," he told reporters on the sidelines of Financial Inclusion Day seminar.
His suggestion comes ahead of the Budget for 2013-14 for which Finance Minister P Chidambaram has started consultations with different interest groups.
India taxes income at three rates - 10 per cent, 20 per cent and 30 per cent. These rates were fixed in 1997 by then Finance Minister P Chidambaram.
Interestingly, recently at a lecture to honour Raja Chelliah, Chidambaram had called for a debate on the need of inheritance tax in India, wondering if the country had paid enough attention to accumulation of wealth in the hands of a few.
Earlier this week, the US Congress voted for raising taxes on rich Americans, as part of resolutions of crisis over the so-called fiscal cliff. The US legislation raises taxes on individual earning more than USD 400,000 per year, and on couple earning more than USD 450,000.
The veteran economist, a former RBI governor, also stressed on fiscal discipline to promote growth.
"We need to bring down the fiscal deficit over next few years. For this purpose, we need to act on expenditure side and as well as revenue side. On the expenditure side, we must focus on how to prune the subsidies and reduce them as a proportion of GDP," Rangarajan said.
