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.
For hassle-free, accurate, and fast calculation of your taxes payable, use our Income Tax Calculator Tool Now!!
If you find taxes complicated but want to maximize your tax savings, connect with our experts, who can help streamline your taxes and maximize your tax savings. Hire an online CA Now!
