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 payable by taxpayers earning higher incomes, beyond a certain limit set by the government. It is to ensure that the rich contribute more to income taxes than the poor. However, to ensure balance, marginal relief is also provided to taxpayers on surcharges.
Key Takeaways
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Surcharge meaning in income tax is very simple. It is an extra tax applied to high-income earners in India. It is calculated on the total tax payable, not on the income itself. The surcharge rate depends on the taxpayer type ( individual and company), the income slab, and the selected tax regime.
A surcharge on income tax is levied if Income is more than ₹50 Lakhs in the case of Individuals and ₹1 Crores in the case of companies.
The Union Budget 2025 introduced key updates to taxation, including changes to the surcharge on income tax. While the surcharge rates remain unchanged, revisions in income tax slabs offer relief to middle-class taxpayers. The government has increased the tax-free income limit to ₹12 lakh, with a standard deduction of ₹75,000 for salaried individuals, making income up to ₹12.75 lakh tax-free.
A surcharge on income tax continues to apply to high-income individuals:
37% on income exceeding ₹5 crore (as per the old regime)
To prevent excessive tax burdens, marginal relief remains in place, ensuring that taxpayers whose income marginally exceeds ₹12 lakh do not pay more tax than the income actually exceeding the threshold.
These changes aim to simplify taxation and enhance savings, providing financial relief to salaried individuals while maintaining revenue balance.
To help you understand how surcharge applies in different cases, consider the table below:
| Type of Taxpayer | Income Limit | Surcharge Rate on Income Tax |
|---|---|---|
Individual/HUF/AOP/BOI/ Artificial Judicial Person | Less than ₹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.
For individuals, the surcharge is based on total income and varies by income slab. For companies, the surcharge is based on company type and taxable income, with different rates for domestic and foreign companies.
The surcharge is calculated on the total income tax liability before adding the health and education cess. It is expressed as a percentage based on the taxpayer’s income level or type.
Taxpayers can avoid or minimise surcharges by:
In addition to the surcharge, a health and education cess of 4% is applied to the total tax and surcharge amount to fund educational and healthcare initiatives.
The surcharge rates vary by income level and the type of taxpayer. These rates are set by the government for individuals, domestic companies, and foreign entities.
10% for incomes exceeding ₹50 lakh but up to ₹1 crore.
15% for incomes exceeding ₹1 crore but up to ₹2 crore.
25% for incomes exceeding ₹2 crore but up to ₹5 crore.
37% for incomes exceeding ₹5 crore (only under the old tax regime).
Foreign companies are subject to a lower surcharge rate, reflecting their tax obligations under international agreements or treaties. Specific rates apply based on income thresholds.
Foreign Companies:
2% for income between ₹1 crore and ₹10 crore
5% for income exceeding ₹10 crore
Does your tax regime really affect your surcharge burden? The answer might influence your next filing decision:
Old Tax Regime: Higher surcharge rates apply, particularly for incomes exceeding ₹5 crores.
New Tax Regime: Capped at a maximum of 25% surcharge, offering relief for high-income earners.
Even after the removal of the compensation cess on many luxury and sin goods, tobacco products are likely to keep paying this extra cess until January 2026
Source: FE
Marginal relief is designed to protect taxpayers from disproportionately high tax liabilities when their income marginally exceeds the surcharge threshold. It ensures the additional tax payable does not exceed the excess income over the threshold.
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 the 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).
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 had 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 receives marginal relief on the difference between the excess tax payable, ₹1,64,250 (₹ 14,76,750 – ₹13,12,500), and the amount of income exceeding ₹50 Lakhs, ₹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 a 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.
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 between the amount of income tax payable (including surcharge) on the higher income and the amount exceeding ₹1 crore.
If an individual’s income is ₹50.1 lakh, the surcharge is calculated on the excess ₹0.1 lakh. Marginal relief ensures the total tax liability is not higher than what it would have been below the threshold.
For companies, similar calculations apply, balancing the surcharge impact against the slight income increase.
Effective tax planning can help reduce or avoid surcharge liability. Strategies include:
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; it usually begins 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.
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.
Under Section 115BAC, surcharge is 10%, 15%, 25%, and 37% for incomes above ₹50L, ₹1 Cr, ₹2 Cr, and ₹5 Cr respectively.
While the surcharge is added to the tax amount and can be utilised for any purpose, the cess is imposed on the tax amount for a specific purpose. Several cesses and surcharges exist, including the crude oil and Swachh Bharat Abhiyan cess.
Taxpayers whose taxable income falls between ₹7 lakhs and ₹7.5 lakhs after deducting allowable expenses are now eligible for marginal relief in income tax. Thus, revenue that is just marginally above ₹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.
Marginal relief = excess income – excess tax payable due to surcharge; it ensures tax payable doesn’t exceed income exceeding the surcharge threshold.
Marginal relief applies to surcharge in both old and new tax regimes in India, helping taxpayers reduce excess tax burden when income marginally exceeds thresholds. However, for a rebate under Section 87A, marginal relief is available only in the new regime.
Marginal relief prevents excessive tax where income slightly exceeds surcharge thresholds, providing a limited but significant tax rate reduction.
The 37% surcharge was cut to 25% under the new regime to ease the tax burden on the super-rich and promote investment growth. This reduction aligns with more relaxed slab rates, making the regime more attractive and fostering economic growth.
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