What is Surcharge on Income Tax?
A surcharge on income tax is an additional tax levied on individuals and firms with income exceeding specific thresholds. It targets high-income earners to ensure they contribute a larger share of taxes compared to those with lower incomes.
For individuals earning more than ₹50 lakhs annually or firms earning over ₹1 crore, an income tax surcharge is applicable. The highest surcharge rate for income above ₹5 crores has been reduced from 37% to 25%, lowering the maximum marginal tax rate from 42.74% to 39%. This applies only under the new regime.
Additionally, under the new tax regime, income up to ₹12 lakhs is eligible for a tax rebate, meaning no taxes are payable for incomes below this threshold.
What is the Maximum Marginal Rate?
When a surcharge is added to income tax and other applicable levies, the total tax liability is referred to as the Maximum Marginal Rate. This rate represents the highest effective tax rate a taxpayer may face, including income tax, surcharge, and the health and education cess.
For individuals in the highest income bracket in India, this rate can reach up to 39%, reflecting the combined effect of these taxes. High-income earners must understand this rate as it defines the upper limit of their tax liability.
How is a surcharge levied?
One of the important points to be noted here is that the surcharge is levied as a percentage of taxes and not of income, whereas taxes are levied on income earned. Basically, we can say that a surcharge is a tax on tax.
What is the rate of surcharge for Different Taxpayers?
The surcharge is applicable to individuals, HUF, AOP, BOI and AJP -
- A resident Individual aged less than 60 years
- A resident Individual aged 60 years & above but less than 80 years (Resident senior citizen)
- A resident Individual aged 80 years & above (Resident super senior citizen)
- Non-resident individual
- Hindu Undivided Family (HUF)
- Association of Persons (AOP)
- Body of Individuals (BOI)
- Artificial juridical person (AJP)
Surcharge Rates for Individual/HUF/AOP/BOI/ Artificial Judicial Person
| Net Taxable Income limit |
Under old tax regime |
Under new tax regime |
| Less than Rs 50 lakhs |
Nil |
Nil |
| More than Rs 50 lakhs ≤ Rs 1 Crore |
10% |
10% |
| More than Rs 1 Crore ≤ Rs 2 Crore |
15% |
15% |
| More than Rs 2 Crore ≤ Rs 5 Crore |
25% |
25% |
| More than Rs 5 Crore |
37% |
25% |
Surcharge Rates for Domestic Company
| Net Taxable Income limit |
Surcharge Rate on the amount of income tax under normal provisions |
Surcharge Rate on the amount of income tax us 115BAA or 115BAB |
| Less than Rs.1 Crores |
- |
10% |
| More than Rs 1 Crore ≤ Rs 10 Crore |
7% |
| More than Rs.10 Crores |
12% |
Surcharge Rates for Foreign Company
| Net Taxable Income limit |
Surcharge Rate on the amount of income tax |
| More than Rs 1 Crore ≤ Rs 10 Crore |
2% |
| More than Rs.10 Crores |
5% |
Surcharge rates for Firm/ LLP/ Local Authority
When the total income is more than Rs.1 crore, the surcharge is payable at the rate of 12% of the income tax computed.
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