Does your income come under one of the higher tax brackets? If that is the case, you are liable to pay a surcharge on your Income Tax. In simpler terms, a surcharge on income tax is an additional tax to be paid by the taxpayers earning a higher income, beyond a certain limit set by the government. This is done by the government to ensure that the rich contribute to the income taxes more than the poor, owing to the surcharge provision. However, to ensure balance, marginal relief is also provided to taxpayers on surcharges.
A surcharge is an extra fee, tax or fee added to the cost of a good or service in addition to the initial price. A surcharge is added to the existing tax and is not a part of the initially quoted price of a good or service.
A surcharge on income tax is levied if Income is more than ₹50 Lakhs in the case of Individuals and ₹1 Crores in case of Companies.
In the Income Tax Act, there is a provision of a surcharge on income tax for those taxpayers whose income falls under the upper tax slab of 30%. You are liable to pay an additional surcharge on your Income Tax liability if your income falls under the 30% tax slab.
The surcharge for individuals is different from those of other taxpayers. Below is the table with the surcharge rates on income tax for various types of taxpayers:
| Type of Taxpayer | Income Limit | Surcharge Rate on Income Tax |
|---|---|---|
Individual/HUF/AOP/BOI/ Artificial Judicial Person | Less than Rs 50 Lakhs | Nil |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | ₹50 Lakhs to ₹1 Crore | 10% |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | ₹1 Crore to ₹2 crore | 15% |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | ₹2 Crore to ₹5 crore | 25%* |
Individual/HUF/AOP/BOI/ Artificial Judicial Person | More than ₹5 Crore | 37%* |
Firm/LLP/Local authorities/Co-operative Society | More than ₹1 Crore | 12% |
Domestic Company | ₹1 Crore to ₹10 Crore | 7% |
Domestic Company | More than ₹10 Crores | 12% |
Foreign Company | ₹1 Crore to ₹10 Crore | 2% |
Foreign Company | More than ₹10 Crore | 5% |
Here, it is important to note that if your income is more than ₹1 crore but less than ₹2 crores, the surcharge on income tax will be levied at the rate of 15%.
As per the provisions of the Income Tax Act, you can get a marginal relief if your income is above ₹50 lakhs. The Marginal relief will be the difference between the excess tax payable (including the surcharge for individuals) and the amount exceeding ₹50 Lakhs.
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Marginal relief limits your income tax liability to 40% of the difference between your total income and your tax exemption limit. You cannot receive any further credits on income after marginal relief is provided.
According to Surcharge Provisions made under the Income Tax Act, a marginal relief shall be provided to certain taxpayers. This relief will be equal to the difference between tax payable (including surcharge) on income above the set limit (₹50 Lakhs or ₹1 Crore) and the amount of income that exceeds the set limit (₹50 Lakhs or ₹1 Crore).
Marginal relief limits your income tax liability to 40% of the difference between your total income and your tax exemption limit. You cannot receive any further credits on income after marginal relief is provided.
Let’s take an Example:
Say Raj earns a total income (net income after all possible deductions or the taxable income) of ₹51 Lakhs in a financial year, which is more than the 50 Lakhs limit but does not exceed ₹1 Crore. Therefore, Raj will have to pay a surcharge on the income tax computed at the rate of 10%.
Therefore, the total tax payable will be ₹14,76,750. But, if Raj would have earned only ₹50 lakhs, then he would have to pay only ₹13,12,500, which means earning an extra ₹1 Lakh gets him to pay extra income tax of ₹1,64,250.
Fortunately, Raj gets a marginal relief of the difference amount between the excess tax payable, that is ₹1,64,250 (₹14,76, 750 – ₹13,12,500 ) and the amount of income that exceeds ₹50 Lakhs, that is 1 Lakh (₹51,00,000 – ₹50,00,000). The marginal relief that Raj receives will be ₹64,250 (₹1,64,250 – ₹1,00,000).
In the case of a firm, if the total income of the firm exceeds ₹1 Crore, a surcharge is levied at 12% rate. In such a case, marginal relief will be the difference between the income tax payable (including surcharge) and the amount exceeding ₹1 Crore.
1. For instance, if you are running a firm whose total income is ₹1.01 crores, you will have to pay an income tax, including the surcharge on income tax at 12%. Hence, the total tax payable will be ₹32.24 lakhs.
2. However, if the total income of your firm is ₹1 Crore, the tax payable would be ₹31.2 Lakhs only. That means you are paying an extra income tax of ₹1.04 Lakhs for earning an extra income of ₹1 lakh.
3. Hence, your firm can avail a marginal relief, which is the difference between the excess tax payable on higher income, i.e., ₹1.04 lakhs, and the amount exceeding ₹1 crore, i.e., ₹1 lakh in this case.
4. Accordingly, your marginal relief comes out to be (1,04,000 — 1,00,000) = ₹4,000.
If you are operating a domestic company whose turnover is between ₹1 crore to ₹10 crore, you will have to pay a surcharge on the income tax of 7%.
Marginal relief will be provided to such a company whose total income is between ₹1 crore to ₹10 crores. The relief will be the difference of the amount of income tax payable (including surcharge) on the higher income and the amount exceeding ₹1 crore.
1. For instance, if your company’s total income is ₹1.01 crores, you will have to pay an income tax, including the surcharge on income tax at 7%. Hence, the total tax liability will be ₹27.04 lakhs. (After claiming 87A rebate and including Health & education cess)
2. However, if your firm’s total income would have been ₹1 crore, your tax payable would have been only ₹26 lakhs. That means that you are paying an extra income tax of ₹1.04 lakhs for earning an extra income of ₹1 lakh.
3. Hence, a firm can avail of a marginal relief, which is the difference between the excess tax payable on higher income, i.e., ₹1.04 Lakhs, and the amount exceeding ₹1 Crore, i.e., ₹1 Lakh in this case.
4. The total marginal relief is ₹1,04,000 – ₹1,00,000 = ₹4,000.
From the above 2 case studies, you can now understand how the marginal relief on the surcharge on income tax works in the case of firms and domestic companies.
Disclaimer: This article is issued in the general public interest and is only for general information. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research this further or consult an expert.
An income tax surcharge is an additional tax imposed in India on individuals, businesses, and Hindu Undivided Families (HUFs) whose income surpasses a predetermined threshold. The surcharge rate is determined by the income level; they usually begin to apply at incomes over ₹50 lakh, with greater rates being applied to higher income brackets.
Conversely, a measure known as marginal relief aims to lessen the tax burden resulting from the surcharge. It guarantees that the amount of the tax increase resulting from the surcharge does not surpass the amount by which the income surpasses the designated threshold. By providing this relief, taxpayers can avoid paying disproportionately high taxes simply for narrowly exceeding the income level.
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The TDS (Tax Deducted at Source) surcharge amount varies according to the individual's or business's income level. If an individual's income surpasses ₹50 lakh, they will be subject to a 10% surcharge; if their income exceeds ₹1 crore, they will be subject to a 15% surcharge. If a company's revenue surpasses one crore rupees, they are subject to an additional 15% charge
Apply the appropriate surcharge rate to your income tax liability based on your income bracket. For instance, there is a 10% income tax surcharge if your total income exceeds ₹50 lakh but is less than ₹1 crore.
The cess rate of income tax surcharge is 4%. For both local and foreign organisations, this rate is applied to the total amount of income tax plus surcharge.
While the surcharge is added to the paying tax and can be utilised for any purpose, the cess is imposed on the tax amount for a specific purpose. Several cess and surcharges exist, including the crude oil and Swachh Bharat Abhiyan cess.
Taxpayers whose taxable income falls between INR 7 lakhs and INR 7.5 lakhs after deducting allowable expenses are now eligible for marginal relief in income tax Thus, revenue that is just marginally above INR 7 lakhs will not require you to pay taxes.
According to the Income Tax Act, persons and companies granted relief from paying a surcharge are referred to as beneficiary relief. For many people and businesses, marginal relief in income tax lessens the burden of fees.
No, it is not compulsory for all taxpayers to pay a surcharge on income tax in India. The surcharge is an additional income tax charge and applies only to individuals and entities whose income exceeds specified thresholds. For instance, as of the current tax regulations, a surcharge is levied on individuals earning above ₹50 lakh annually, with rates increasing for higher income slabs.
