surcharge in income tax

Hello Everyone, in this post we will a short introduction about the surcharge in income tax. We will look into the following topics in detail:

What is surcharge in Income Tax?

A surcharge is a kind of tax on tax which a taxpayer has to pay to the government.

It is only applicable for individuals who are earning above Rs. 50 Lakhs income in a financial year. Similarly, the surcharge is applicable only for companies whose total income is over Rs. 50 Lakhs.

The government has introduced this tax to ensure the mandatory contribution from the rich for the welfare of the country more than the poor.

The government also provides marginal relief for a certain type of taxpayers.

The tax amount will then go to the Centre like other taxes. However, it is not shared with the states.

Note:

  • The surcharge rate is 5% for the domestic corporations if total income is from Rs. 1 cr to Rs. 10 cr. When the total income cross Rs. 10 cr, then the rate is increased to 10%.
  • Similarly, the surcharge rate is 2% for foreign corporations if the total income is between Rs. 1 cr to Rs. 10 cr. If the total income crosses Rs. 10 cr then the rate is 5%.
  • Marginal relief is given to both domestic and foreign companies if the total income is in between Rs. 1 cr and Rs. 10 cr.

What is a marginal relief?

Marginal relief is provided by the government to decrease the tax burden of a taxpayer for income over Rs. 50,00,000 or Rs. 1,00,00,000.

It is also provided when the income is above Rs.1 crore. Marginal relief is available only for surcharge not for any type of CESS.

Marginal Relief = Surcharge – 70% (Income – Rs. 50,00,000)

Surcharge rates for different taxpayers

Given below are the different surcharge rates under the Income Tax.

Taxpayer Income limit Surcharge Rate
Individual/HUF/AOP/BOI/ Artificial Judicial Person Net income is over Rs.50 Lakhs but doesn’t exceed Rs. 1 Crore 10%
Over Rs.1 Crore but not more than Rs 2 crore 15%
Over Rs.2 Crore but not more than Rs 5 crore 25%
Over Rs.5 Crore 37%
Firm/LLP/Local authorities/Co-operative Society Over Rs.1 Crore 12%
Domestic Company Over Rs.1 Crore but not more than Rs.10 Crores 7%
Over Rs.10 Crores 12%
Foreign Company Over Rs.1 Crore but not more than Rs. 10 Crores 2%
Over Rs.10 Crores 5%

Calculation of Surcharge

Let us see a couple of examples to understand the concept of surcharge and marginal relief.

Ex-1: Kalpana has a net annual income of Rs 65 Lakhs. Now, we will see the procedure of calculating her income tax and surcharge.

Step-1: Calculating income tax for actual income

Rs. 0 – 2.5 Lakhs @ 0% = 0
Rs. 2,50,000 – Rs 5,00,000 @ 5% = Rs 12,500
Rs. 5,00,000 – Rs 10,00,000 @ 20% = Rs 1,00,000
Rs. 10,00,000 – Rs 55,00,000 @ 30% = Rs 16,50,000

Total Tax calculated = Rs 17,62,500

Add: Surcharge @ 10% = Rs 1,76,250

Total Tax + Surcharge = Rs 19,38,750

Step-2: Calculating income tax for 50L 

(Rs 12,500 + Rs 1,00,000 + Rs 12,00,000) = Rs 13,12,500

Step-3: Calculating the excess liability

Excess Tax Payable = Value from step-1 – Value from step-2

= Rs. (19,38,750) – (13,12,500)

= Rs. 626,250

Step-4: Calculating Marginal relief

Marginal relief = Excess Tax Payable – (Income which is in excess of 50 Lakhs)

= 626,250 – 15,00,000 (65 lakh – 50 lakh)

= -873750

Since this amount is in negative, there is no marginal relief applicable.

NOTE: If marginal relief amount is positive then, we have to reduce that from the total tax payable amount.

Step-5: Tax Payable calculation

Since there is no marginal relief applicable in this case, the tax payable amount is the one which was calculated in step-1 i.e., Rs. 19,38,750.

Ex-2: Harish has a net annual income of Rs 51 Lakhs. Now, we will see the procedure of calculating her income tax and surcharge.

Step-1: Calculating income tax for actual income

Rs. 0 – 2.5 Lakhs @ 0% = 0
Rs. 2,50,000 – Rs 5,00,000 @ 5% = Rs 12,500
Rs. 5,00,000 – Rs 10,00,000 @ 20% = Rs 1,00,000
Rs. 10,00,000 – Rs 41,00,000 @ 30% = Rs 12,30,000

Total Tax calculated = Rs 13,42,500

Add: Surcharge @ 10% = Rs 1,34,250

Total Tax + Surcharge = Rs 14,76,750

Step-2: Calculating income tax for 50L 

(Rs 12,500 + Rs 1,00,000 + Rs 12,00,000) = Rs 13,12,500

Step-3: Calculating the excess liability

Excess Tax Payable = Value from step-1 – Value from step-2

= Rs. (14,76,750) – (13,12,500)

= Rs. 1,64,250

Step-4: Calculating Marginal relief

Marginal relief = Excess Tax Payable – (Income which is in excess of 50 Lakhs)

= 1,64,250 – 1,00,000 (51 lakh – 50 lakh)

= 64,250

Step-5: Tax Payable calculation

Tax Payable = Total Tax – Marginal relief

= 14,76,750 – 64,250

= 14,12,500

With this, we have come to an end of this post on surcharge under income tax. Share your views and opinions in the comment section below.