Surcharge on Income Tax

Following are the thresholds and the rates of surcharge applicable in case of Individuals, Hindu Undivided Family (HUFs), Body of Individuals (BOI), Association of Persons (AOP) and Artificial Judicial Person (AJP):

Note:

People Also Search for

Surcharge is levied if the total income of the assessee exceeds the minimum amount prescribed and hence surcharge is payable by all the individuals or companies whose total income exceeds Rs. 50 lakh or Rs. 1 crore respectively. However, in certain cases, assesses might become liable to pay surcharge even in case the income exceeds the limit marginally. To grant relief to such assesses, concept of marginal relief is introduced. As the name suggests, marginal relief is the relief granted to the taxpayer from the levy of surcharge if he is liable to surcharge due to the reason that his income marginally exceeds the limits prescribed.

The purpose of marginal relief is to ensure that the amount of tax payable including surcharge does not exceed the amount of income which exceeds the prescribed threshold. For example, if the income of the individual is more than Rs. 50 lakh, marginal relief will be applicable. This will ensure that income tax payable (inclusive of surcharge) on Rs. 50 lakh does not exceed the amount by which the individual’s income exceeds Rs. 50 lakh.

The same can be understood with the help of following example in which income of an individual is Rs. 50.1 lakh :

Since the income of the individual is more than Rs. 50 lakh but less than Rs. 1 crore, the individual will be liable for surcharge at a rate of 10%. Calculation of tax liability inclusive of surcharge is as follows:

In case, the tax payable if the amount of income was Rs. 50 lakh would be Rs. 11,85,000 (before surcharge). Thus it can be seen that when the income is increased by Rs. 10,000, tax liability increased by Rs. 1,21,800. To prevent such a situation, the provision of marginal relief is provided to the tax payers.

Note: Tax calculations have been done using the new tax regime.

Continuing from the above example, following steps show the calculation of marginal relief:

Step 1: Calculation of income tax and surcharge : In this case, as calculated above, the income tax inclusive of surcharge on Rs. 50,10,000 is Rs. 13,06,800.

Step 2: Compare additional income and incremental tax:

Incremental salary = Rs. 50,10,000 – Rs. 50,00,000 = Rs. 10,000

Incremental Tax = Rs. 13,06,800 (income tax inclusive of surcharge on Rs. 50,10,000) – Rs. 11,85,000 (Income tax on Rs. 50,00,000) = Rs. 1,21,800

In this case, since incremental tax (Rs. 1,21,800) is more than incremental income (Rs. 10,000), the assessee is eligible for Marginal Relief. The total incremental tax inclusive of surcharge will be restricted to Rs. 10,000 based on the concept of marginal relief.

Step 3: Calculation of Surcharge taking into account marginal relief:

In this case, total income is Rs. 50,10,000 on which income tax excluding surcharge is Rs. 11,88,000. If the total income would have been Rs. 50 lakh, income tax would have been calculated as Rs. 11,85,000. Hence, the incremental income tax (excluding surcharge) is Rs. 3,000 (Rs. 11,88,000 – Rs. 11,85,000).

Since the incremental income tax inclusive of surcharge can be maximum Rs. 10,000 and Rs. 3,000 is consumed in incremental income tax, maximum amount of surcharge will be limited to Rs. 7,000 (Rs. 10,000 – Rs. 3,000).

Hence calculation of income  tax including surcharge shall be as follows:

However, it is to be noted that in case the incremental income tax inclusive of surcharge does not exceed the amount by which income exceeds the limits prescribed, the above calculation shall not be applicable and normal calculation of income tax shall apply.