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What is Income Tax Surcharge?

If you come under the higher income tax bracket, i.e., 30% tax bracket, you may have to pay an additional surcharge on your income tax liability. In simple words, an income tax surcharge is an extra amount you pay to the government for earning a higher income, which is higher than a certain limit.

By levying a surcharge on the income tax, the Government of India ensures that the rich or people who have high income pay higher taxes than the poor. However, the income tax department also provides a marginal relief on the surcharge to a specific class of taxpayers. Let us know more about the surcharge on income tax and the marginal relief provision.

What does surcharge mean?

A surcharge is an additional tax or fee added to the cost of the goods or services in addition to the initial cost. The surcharge is added to the existing cost, and it is not a part of the initial quoted price.

What does a surcharge on income tax mean?

The Indian Income Tax Act, 1961 has a provision for a surcharge on income tax for specific tax-paying individuals who fall under the upper tax slab of 30%. If you fall under this tax category, you must pay a surcharge on your income tax payments. The surcharge on income tax is an additional tax liability that you must bear for having a higher income.

What are the surcharge rates?

The surcharge rate varies for different types of taxpayers. The table below illustrates the surcharge rate on income tax for various taxpayers:

Taxpayer Type Income Limit Surcharge Rate on Income Tax
Hindu Undivided Family, Individual, Association of Person, Body of Individuals INR 50 Lakhs – INR 1 Crore 10%
Hindu Undivided Family, Individual, Association of Person, Body of Individuals INR 1 Crore – INR 2 Crore 15%
Hindu Undivided Family, Individual, Association of Person, Body of Individuals INR 2 Crore – INR 5 Crore 25%
Hindu Undivided Family, Individual, Association of Person, Body of Individuals More than INR 5 crores 37%
Local Authorities, Co-operative Societies, Local Authorities, Limited Liability Partnership, Firms More than INR 1 Crore 12%
Domestic Organisations/Companies INR 1 Crore – INR 10 Crore 7%
Domestic Organisations/Companies More than INR 10 Crore 12%

Marginal Relief on Income Tax Surcharge for Individuals

As per the Surcharge provisions under the Indian Income Tax Act, individual taxpayers can get a marginal relief on the surcharge paid. The marginal relief amount is equal to the difference between the actual tax payable, including the surcharge on the set income limit, i.e., between INR 50 lakhs to INR 1 Crore and the amount exceeding the set limit.

Let us understand marginal relief on income tax surcharge with an example. 

Mr Raj Chopra’s total annual income is INR 51 lakhs (after considering all the deductions) in a financial year. This means Mr. Chopra’s income is more than the surcharge limit of INR 50 lakhs but is not more than INR 1 Crore. In this case, Mr Chopra is liable to pay a surcharge on the income tax, i.e., computed at 10%.

Therefore, Mr Chopra must pay an income tax of about INR 14,77,000. If Mr Chopra’s annual income were INR 50 lakhs, he would have paid a tax of about INR 13,13,000. This means since his yearly earnings are INR 1 lakh more than the threshold limit, he must pay an additional income tax of INR 1, 64, 250.

However, Mr Chopra can get a marginal relief on the difference between the excess tax payable, i.e., INR 1, 64, 250 and the income amount that exceeds INR 50 lakhs. In this case, it is INR 1 lakh. So, Mr Chopra can get a marginal relief of INR 64,250.

Final Word

Now that you know what income tax surcharge and marginal relief on surcharge is, do your due diligence and take advantage of the relief provision to reduce your annual tax liability.

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