Earning higher income is the dream of almost every single Individual. Money is what drives an individual to perform at his optimum potential. However, in India, if you belong to higher income category then you may have to pay additional tax in the form of surcharge. Surcharge is the additional charge levied on the amount of Income tax. Logic behind applying surcharge is to make rich people contribute more to income tax more than the people belonging to lower income category.
Applicability of Surcharge:
Different rates of surcharge are applicable to different taxpayers under the Income Tax Act, 1961. From 1st April 2023, the highest surcharge rate of 37% shall be reduced to 25% under the new tax regime.
Let us look into different rates of surcharge under old as well as new regime:
- Surcharge rates for Individuals/AOP/BOI/HUF/Artificial juridical persons
| Net Taxable Income | Surcharge on Tax under Old Regime | Surcharge on tax under New Regime |
| Less than Rs.50Lacs | – | – |
| 50Lacs upto 1Cr. | 10% | 10% |
| More than 1Cr.upto 2Cr | 15% | 15% |
| More than 2Cr. Upto 5Cr | 25% | 25% |
| More than 5Cr | 37% | 25%* |
*Government of India capped the surcharge rate to 25% from 37% under old regime for individuals and HUFs on income above Rs. 5 crores in Union Budget 2023.
Surcharge on long term capital gains(LTCG) on listed equity shares, units, etc., has been capped at 15%.
- Surcharge rate for Domestic and Foreign Companies
| Net Taxable Income | Domestic Company | Foreign Company | |
| Normal Provisions Surcharge | Section 115BAA or 115BAB Surcharge | ||
| Less than 1Cr. | – | 10% | – |
| 1Cr. Upto 10Cr. | 7% | 10% | 2% |
| More than 10Cr. | 12% | 10%* | 5% |
* Surcharge @10% of income-tax computed under section 115BAA or section 115BAB would be leviable. Since there is no threshold limit for the applicability of surcharge, consequently, there would be no relief.
* In case of Firms/LLPs/Local authorities, where the total income exceeds 1 crore, surcharge is payable at the rate of 12% of income-tax.
What is Marginal Relief on surcharge and how is it applicable:
Marginal relief is provided to limit the impact of surcharges on taxpayers in certain income brackets where income is only marginally exceeding the threshold limit.
It ensures that the total tax liability (including surcharge) does not exceed a certain percentage of the income exceeding the threshold.
Let us understand how it works.
Case 1 : Marginal relief threshold is Rs.50 Lakhs (for both the regimes)
Relief amount = Tax payable (including surcharge) on income exceeding Rs.50Lakhs Minus
Tax payable on the entire income of Rs. 50 lakhs (excluding surcharge)
Case 2 : Marginal relief threshold is Rs.1 Cr. (only for old Regime)
Relief amount = Tax payable (including surcharge) on income exceeding Rs.1Cr Minus
Tax payable on the entire income of Rs.1Cr (excluding surcharge)
Let us understand this with an example.
Mr. Ashok has a total income of Rs. 50,10,000 in FY 2023-24. In this case, Mr.Ashok will pay a tax of Rs.13,23,300 inclusive of surcharge. (Tax amount Rs.12,03,000 and Surcharge Rs.1,20,300)
However, if he he would have earned Rs.50,00,000, then the tax amount would be Rs. 12,00,000. This shows an increase of only Rs.10,000 in his total income would increase his tax liability by Rs.1,23,300.
To calculate marginal relief, his excess in income i.e. Rs. 10,000 is added to his tax liability on Rs. 50,00,000, which will be Rs.12,10,000.
Therefore, the marginal relief shall be difference between Rs.13,23,300 and Rs.12,10,000. This will be Rs. 1,13,300.
Here, surcharge after marginal relief shall be Rs. 7,000. (Rs.1,20,300 – 1,13,300).
Conclusion:
Surcharge is levied on assessees with higher income category to collect increased taxes from them to help the economy whereas income tax has also given them an option of marginal relief where a smaller increase in income over threshold limit would not attract tax liability which will be more than the amount of increase in income. Surcharge rate is currently capped at 25%.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.