Surcharge on Income Tax

Surcharge on Income Tax

Income tax can be perceived as the income of the government to carry out various developments in the country. Individuals and companies are required to file their income tax after a certain level of income as mandated by the Indian government. The companies and individuals falling into the richer section of the tax slab are required to pay additional tax over their allotted tax slab rate. This extra fee is known as an income tax surcharge rate. The Indian government has set a rate of surcharge on income tax over a certain income. Still, as a relief, it has also provided taxpayers with the option of marginal relief.

This blog is a taxpayer’s way for taxpayers to contribute to the nation’s development by providing them with all the study material they need on income tax surcharge rate and marginal relief. Welcome to adulthood!

What Is The Surcharge On Income Tax For FY 2023-24?

A surcharge on income tax was brought into effect under the Finance Act 2013. Nirmal Sitharaman, Finance Minister of India, announced the budget for the financial year 2023-24 on February 1, 2023.

Regarding the income tax surcharge rate and income tax surcharge Marginal relief, the Union Budget announced that the surcharge rate on income tax would be reduced from 37% to 25% per the new tax regime. 

Surcharge Rates For Different Taxpayers

The rate of surcharge on income tax meaning reveals that different categories have different income tax surcharge rates. The rates are mentioned for different categories below.

Surcharge Rates for Individuals

The rate of surcharge on income tax for individuals is given in the table below.

Income Surcharge Rate  (New Tax Regime) Surcharge Rate  (Old Tax Regime)
Less than Rs 50 Lakhs Nil Nil
Rs.50 Lakhs to Rs. 1 Crore 10% 10%
Rs.1 Crore to Rs 2 crore 15% 15%
Rs.2 Crore to Rs 5 crore 25% 25%
More than Individuals 25% 37%

Note: If your income is higher than Rs. 1 crore but less than Rs. 2 crores, a 15% surcharge on income tax for individuals will be applied.

Surcharge Rates for Domestic Company

The rate of surcharge on income tax for companies is given in the table below.

Income Surcharge Rate 
Rs.1 Crore to Rs.10 Crore 7%
More than Rs.10 Crores 12%

Surcharge Rates for Firm/LLP/Local authorities/Co-operative Society

The surcharge on tax on firm total income is given in the table below.

More than Rs.1 Crore 12%

Surcharge Rates for Foreign Companies

The surcharge on tax on firm total income is provided in the table below.

Rs.1 Crore to Rs. 10 Crore 2%
More than Rs.10 Crore 5%

Calculation Of Surcharge With Example

It is important for a taxpayer to know how to calculate their surcharge on income tax. The following steps must be followed to calculate the amount to pay as per the rate of surcharge on income tax 

  • The first step towards calculating the rate of surcharge on income tax is to compute your total income. You can gather your taxable income by deducting the elements under Chapter VI-A and Section 80C.
  • Once you know your total taxable income, check the income tax slab your income falls into. 
  • If your taxable income is more than Rs. 50 lakhs (for individuals) and Rs. 1 crore (for companies), you must check the income tax surcharge rate in the previous subhead.

Confusing, right? Let’s take a look at the example below and attain a better understanding of the surcharge on income tax for individuals. The income for two individuals for FY 2022-23 is taken as an example.  

Particulars Taxpayer A Taxpayer B
Total Taxable Income 50,00,000 51,00,000
Total Tax payable as per Income Tax Slabs 13,12,500 13,42,500
Applicability of Surcharge No Yes
Surcharge @ 10% - 1,34,250
Total Tax Payable 13,12,500 14,76,750

Marginal Relief

Individual taxpayers with taxable incomes over Rs 50 lakh are eligible for marginal relief. The Budget 2023 amended income tax legislation to provide marginal relief to small taxpayers whose taxable income surpasses RS 7 lakh if they choose the new tax regime. The assistance will be accessible beginning April 1, 2023 (FY 2023-24).

Marginal Relief For Individuals

The income tax bands under the new tax framework were changed in Budget 2023. Individual taxpayers with taxable income of up to Rs 7 lakh are eligible for a tax rebate of Rs 25,000 under the new tax regime. As a result, they pay no tax on their taxable income up to Rs 7 lakh.

The marginal relief opportunity is offered to taxpayers whose income exceeds Rs 50 lakh under current income tax legislation. This is due to the surcharge being levied on taxable income exceeding Rs 50 lakh in a fiscal year.

Here's an illustration of how marginal relief works. Assume a person's taxable income is Rs 7.02 lakh after taking the standard deduction of Rs 50,000. The tax payable on this Rs 7.02 lakh taxable income is Rs 26,201 (including cess). An increase in income above Rs 7 lakh (in this case, Rs 2,000) resulted in a tax bill of Rs 26,201. Here, the taxpayer will be entitled to income tax surcharge marginal relief.

Marginal Relief For Firms

There is a 12% surcharge on tax on firm total income if it exceeds Rs. 1 crore. The income tax surcharge marginal relief is provided to a taxpayer if their income crosses the threshold of Rs. 1 crore. The amount of marginal relief is calculated by differentiating the total tax payable (including surcharge) on the current income and the total tax payable on Rs. 1 crore.

Let us understand this one with the help of an example.

Particulars Firm A Firm B
Total Taxable Income 1.01 crores 1 crore
Total Tax payable as per Income Tax Slabs 28,78,572 31,20,000
Surcharge @ 12% 3,34,428 -
Total Tax Payable 32,24,000 31,20,000

We gather from the above example that an extra income of Rs. 1 lakh makes up a tax liability of Rs. 1,04,000. Therefore, the income tax surcharge marginal relief is computed as follows.

Marginal Relief = additional payable tax on higher income - Income exceeding Rs 1 crore

Marginal Relief = 1,04,000 - 1,00,000

Marginal Relief = 4,000

Marginal Relief For Companies

A company will receive marginal relief if its annual revenue is between Rs. 1 crore and Rs. 10 crore. The difference between the income tax that must be paid (including the surcharge) on the higher income and the amount that exceeds Rs. 1 crore will be the relief.

Let us understand this one with the help of an example.

Particulars Company A Company B
Total Taxable Income 1.01 crores 1 crore
Total Tax payable as per Income Tax Slabs 25,27,103 26,00,000
Surcharge @ 7% 1,76,897 -
Total Tax Payable 27,04,000 26,00,000

We gather from the above example that an extra income of Rs. 1 lakh makes up a tax liability of Rs. 1,04,000. Therefore, the income tax surcharge marginal relief is computed as follows.

Marginal Relief = additional payable tax on higher income - Income exceeding Rs 1 crore

Marginal Relief = 1,04,000 - 1,00,000

Marginal Relief = 4,000

Frequently Asked Questions (FAQs)

Can marginal relief be claimed by an Individual?

Yes, an individual can claim marginal relief if they are eligible to pay a surcharge.

When will the surcharge be applicable for Individuals?

An individual with an income of more than Rs. 50 lakhs are required to pay a surcharge on income tax.

What is the change in income tax surcharge 2023?

In budget 2023 Finance Minister Nirmala Sitharaman announced that the maximum marginal rate of tax would drop from 42.74% to 39% of income to cut the highest surcharge rate on income over 5 crores from 37% to 25%. This will be applicable from April 1, 2023.

What is a 10% surcharge on income tax?

There is a 10% surcharge on income tax for individuals, HUF, AOP, BOI, and Artificial Judicial Persons earning income between Rs. 50 lakhs to Rs. 1 crore.

What is a 4% surcharge in income tax?

A 4% health and education levy is applied to the sum of income tax and surcharge.

What is the surcharge on income above 50 lakhs?

Individuals earning an income of more than Rs. 50 lakhs are liable to pay a surcharge as per the rate decided by the Income Tax department. To know the surcharge rate you are liable to pay, follow our guide above. 

What is an example of a surcharge fee?

If your income is Rs. 1 crore and the tax is Rs. 3,000,000 then the surcharge would be 10% of the tax, or Rs. 30,000.

What is the purpose of the surcharge tax?

Through surcharges in income tax, the government ensures that the wealthiest pay more in income taxes than the poor. Nonetheless, a minor reduction or marginal relief is also offered to the taxpayers on the surcharge in order to ensure balance.

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