Surcharge on Income Tax

The additional charge levied on higher income earning individuals over and above tax is known as surcharge. It is levied on the tax payable, and not on the income generated. For example, if you have an income of Rs. 1 crore on which the tax is Rs. 3,00,000, the surcharge would be 10% of Rs. 3,00,000 or Rs. 30,000. In India, surcharge is levied if an individual’s income is more than Rs. 50 lakh and varies with the income bracket. However, according to Budget 2023, the maximum surcharge that can be levied on an individual’s income has been restricted to 25% if you opt for the new tax regime. Read further to find out more details about surcharge on income tax.

Table of Content Surcharge on Income Tax for Individuals Rates of Surcharge How to Calculate Surcharge on Income Tax Marginal Relief on Surcharge FAQs

Surcharge on Income Tax for Individuals

Initially, the surcharge was levied on individuals with a total income more than Rs. 1 crore at the rate of 10%. This rate was increased to 12% in the 2015 Budget and further to 15% in the 2016 Budget. Starting 2017, a surcharge has been levied on those with an income above Rs. 50 lakh. Companies with an income above Rs. 1 crore are also liable to pay surcharge.

Health and Education Cess

In addition to surcharge on income tax, all individuals who are liable to pay income tax also have to pay health and education cess on the tax payable. Health and Education Cess is payable at a rate of 4%. It is levied on the tax payable and not on the underlying income. For example, if an income of Rs. 1 crore attracts a tax of Rs. 3,00,000, the health and education cess would be 4% of Rs 3 lakh. This would come to Rs. 12,000. Unlike surcharge, there are no thresholds for health and education cess – it is payable by all persons liable to pay income tax. Currently, the rate of Health & Education cess is the same under both tax regimes- new as well as old.

Current Rates of Surcharge

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):

Total Income	Old Tax Regime	New Tax Regime
	Rate of Surcharge Applicable
Up to Rs. 50 Lakh	Nil	Nil
Above Rs. 50 Lakh and up to Rs. 1 Crore	10%	10%
Above Rs. 1 Crore and up to Rs. 2 Crore	15%	15%
Above Rs. 2 Crore and up to Rs. 5 Crore	25%	25%
Above Rs. 5 Crore	37%	25%

Note:

• The maximum rate of surcharge on income by way of dividend or income under the provisions of Sections 111A, 112A and 115AD is restricted to 15%
• The maximum amount of surcharge that can be levied on the tax payable by an individual has been limited to 25% if you opt for the new tax regime (as per Budget 2023)

Calculation of Surcharge

Incomes from five separate heads are totaled to arrive at the Gross Total Income or GTI. This GTI is then reduced by various deductions under Chapter VI A to obtain the Net Total Income. This is the income on which tax is calculated. The rate of tax depends on the whether the assessee is an individual, firm, domestic company, etc. Once the tax is calculated, rate of surcharge is applied on this amount of tax. Hence, surcharge is calculated on the total Income Tax and not on the income itself. The amount of income is used just to determine the applicability of the surcharge. After computation of total income, surcharge is calculated on the income tax and not income.

To see the applicability and calculation of surcharge in case of individuals, please find below the examples of an individual assessee:

Taxable Income is Rs. 49 Lakh

Suppose an individual has a taxable income of Rs. 49 lakh, in such case since the total taxable income is less than the minimum threshold limit of Rs. 50 lakh, surcharge is not applicable and hence the tax payable will be calculated as per the slab rates applicable.

Taxable Income is Rs. 53 Lakh

In this case, since the taxable income of the individual is more than Rs. 50 lakh but less than Rs. 1 crore, he is liable to pay surcharge at a rate of 10%. The income tax on Rs. 53 lakh is to be calculated as per the normal slab rate, which amounts to Rs. 12,75,000. The rate of surcharge that is applicable in this case is 10%, hence amount of surcharge would be 10% of Rs. 12,75,000 which is Rs. 1,27,500. Thus income tax payable (inclusive of surcharge would be Rs. 14,02,500 (Rs. 12,75,000 + Rs. 1,27,500).

Taxable Income is Rs. 1.1 Crore

In this case, since the taxable income of the individual is more than Rs. 1 crore, he is liable to pay surcharge at a rate of 15%. The income tax on Rs. 1.1 crore is to be calculated as per normal slab rate, which amounts to Rs. 29,85,000. The rate of surcharge that is applicable in this case will be 15 %, hence amount of surcharge would be 15% of Rs. 29,85,000 which is Rs. 4,47,750. Thus income tax payable (inclusive of surcharge would be Rs. 34,32,750/- (Rs. 29,85,000 + Rs. 4,47,750).

Note: The tax calculation above has been done using the new tax regime, since generally lesser tax needs to be paid for higher incomes when using the new regime of tax calculation.

The Concept of Marginal Relief

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:

Total Income	Rs. 50,10,000
Tax on total income as per slab rate (excluding surcharge)	Rs. 11,88,000
Surcharge @10%	Rs. 1,18,800
Total Tax payable (inclusive of surcharge)	Rs. 13,06,800

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.

Calculation of Marginal Relief

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:

Total Income	Rs. 50,10,000
Tax on total income as per slab rate (excluding surcharge)	Rs. 11,88,000
Add: Surcharge after taking marginal relief into consideration	Rs. 7,000
Tax payable after giving effect of marginal relief	Rs. 11,95,000

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.

FAQs

Q. Is it compulsory to pay surcharge on income tax?

Ans. Yes, in case your income in a financial year exceeds Rs. 50 lakh, you are liable to pay surcharge over and above the tax payable.

Q. Can marginal relief be claimed by individuals?

Ans. Yes, marginal relief can be claimed by all persons for whom surcharge is applicable.

Q. What is the change in income tax surcharge for FY 2023-2024?

Ans. The surcharge rates for FY 2025-2026 are the same as FY 2024-2025. However, in case you opt for the new tax regime and your taxable income is more than Rs. 5 crore, then the maximum surcharge that you would have to pay has been reduced to 25% instead of the earlier 37%.