What is a surcharge?
When customers pay with a Cheque, credit, or debit card instead of cash, they may have to pay an extra fee or tax on top of their final bill. This is called a surcharge. It covers the merchant's additional services, higher product costs, or government regulatory costs. The surcharge can be a fixed amount or a percentage of the purchase amount.
The surcharge applies to different products and services, such as medical care, telecommunications, and travel. The businesses that collect the surcharge pass it on to the banks or authorities involved. However, some rules prevent businesses from adding a surcharge to the final bill that customers have to pay.
Surcharge Explained
A surcharge is an extra fee, cost, or tax that a company adds to the original price of a product or service. Surcharge is usually applied on top of the existing tax and is not included in the price of the product or service, making the final price that the customer pays much higher. For example, if the initial tax rate is 30% and an extra 10% surcharge is applied, the total tax burden will increase to about 33%.
This is often done by companies such as telecom companies, travel companies, cable companies, etc., to cover the cost of additional higher commodity prices like fuel or emergency services or regulatory fees imposed by the government. Another kind of surcharge that is very common is the ATM surcharge that the bank charges. This surcharge can be charged as a fixed amount after each transaction from the ATM.
By adding surcharges, the company transfers the additional costs to the customers. These costs are stated separately from the product’s original price, which seems to remain the same. All industries, small to large, and even governments, apply surcharges to various products and services.
In India, an individual with an annual income of more than 1 crore has to pay a surcharge of 10%, small corporations with a net income of 1 crore to 10 crores have to pay a surcharge of 5%, and those with an income of more than 10 crores are charged with a surcharge of 10%, foreign corporations with a net income rate of 1 crore to 10 crores have to pay a surcharge of 2 %. In contrast, those exceeding the net income of 10 crores have to pay a surcharge of 5%.
The government of India provides some marginal relief to domestic and foreign corporations that cross the net income of 1 crore and 10 crore in the application of surcharges