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  1. Home
  3. Income Tax
  5. Income Tax Basics
  7. Tax Surcharge Rate & Marginal Relief

What Is Surcharge Under Income Tax In India?

Updated on: 15 Jan, 2025 11:46 AM

The surcharge is an additional tax levied upon a person or entity if the income or turnover exceeds the prescribed limits. It is a progressive levy which means it helps in taking higher taxes from the rich who are earning above certain financial limits. It is a direct source of revenue for the central government and is not distributed amongst the state treasuries. This article will help you understand about surcharge in detail.

Contents

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 ₹7 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 42.744%, 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 Marginal Relief?

Marginal relief under the Indian Income Tax Act limits the impact of surcharges for taxpayers in specific income brackets. It ensures that the total tax liability, including the surcharge, does not exceed a set percentage of the income exceeding the threshold.

Types of Threshold for Marginal Relief on Surcharge

Threshold 1: ₹50 Lakhs

Applicable under both Old and New Tax Regimes

Calculation:

  • Relief = Tax payable (including surcharge) on income exceeding ₹50 lakhs
    minus
    Tax payable on the entire income of ₹50 lakhs (calculated without surcharge).

Threshold 2: ₹1 Crore

Applicable under the Old Tax Regime Only

  • Relief = Tax payable (including surcharge) on income exceeding ₹1 crore
    minus
    Tax payable on the entire income of ₹1 crore (calculated without surcharge).

What is the rate of surcharge for an Individual, HUF, AOP, BOI & AJP?

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)

the surcharge is applicable as under

Total income Surcharge Rate
Old Regime New Regime
Upto Rs 50 Lakhs NIL NIL
From Rs 50 Lakhs - Rs 1 Crore 10% of Income Tax 10% of Income Tax
Above Rs 1 Crore - Rs 2 Crore 15% of Income Tax 15% of Income Tax
Above Rs 2Crore - Rs 5Crore 25% of Income Tax 25% of Income Tax
Above Rs 5 Crore 37% of Income Tax 25% of Income Tax

What is the surcharge rate for Indian (Domestic) companies?

Total income Surcharge Rate
Upto Rs 1 Crore NIL
Above Rs 1 Crore - 10 Crore 7% of Income Tax
Above Rs 10 Crore 12% of Income Tax

Note:

However, if a company opts for taxation under section 115BAA or section 115BAB, the surcharge is 10%, irrespective of the total income.

Companies with a total income between ₹1 crore and ₹10 crore will receive marginal relief. This relief equals the difference between the income tax payable (including surcharge) on the higher income and the amount exceeding ₹1 crore.

What is the rate of surcharge for Foreign companies?

surcharge for Foreign companies
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%

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Frequently Asked Questions

Q- What is the difference between Surcharge and Cess?

Surcharge and cess are both extra levies over and above income tax. But, the basic difference between surcharge and cess lies in their rates, and calculation. On the basis of both, we can evaluate the said terms as

Revenue Sharing The surcharge is calculated on income tax and cess is applicable to income tax + Surcharge
Calculation The surcharge is calculated as per differential rates as explained above in case of individuals, companies and other assessees whereas Health and Education Cess is applicable at a standard rate 4% from the Financial Year 2018-19in case of all assessees.

Q- How are surcharge and cess calculated?

Surcharge:
A surcharge is an additional tax applied to the income tax you owe. It is calculated on the amount of income tax payable, not on your total income.

Cess:
A cess is a fixed-rate tax charged on top of other taxes, such as income tax and surcharge. In India, a 4% health and education cess is levied on the combined total of income tax and surcharge.

Q- What is the surcharge rate for TDS?

  • Resident Individuals and HUFs:
    No surcharge applies, irrespective of the payment amount.
  • Non-Resident Individuals and Firms:
    A surcharge of 15% applies if the payment exceeds ₹1 crore.
  • Non-Resident Companies:
    • Payments exceeding ₹1 crore and up to ₹10 crore: 2% surcharge.
    • Payments exceeding ₹10 crore: 5% surcharge.

Q- Can marginal relief be claimed by an individual?

Yes, marginal relief can be claimed by all persons or individuals who are eligible for a marginal relief.

Q- Is it mandatory to pay surcharge on income tax?

Yes. If your total income during a fiscal year is more than Rs.50 lakhs, then, you must pay an additional amount on the tax already owed.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.