Surcharge on Income Tax

The dictionary meaning of the term ‘surcharge’ is an additional charge or payment. Accordingly, in terms of taxation, a surcharge means a tax levied on a tax. Likewise, the surcharge on Income Tax is an additional charge/ tax levied on income tax. Importantly, the surcharge is leviable on income tax and not on income.

In the present article let us go through all the provisions relating to a surcharge on income tax like current effective surcharge rates; marginal relief on surcharge and relevant Frequently Asked Questions (FAQs).

Current effective surcharge rates –

Under Income Tax, different surcharge rates are prescribed for different categories of the taxpayer. The same is briefly explained hereunder –

Surcharge rates for individual, Hindu Undivided Family (HUF), Association of Person (AOP), Body of Individuals (BOI) and Artificial Judicial Person (not having any income under section 115AD i.e. tax on income of foreign institutional investors) –

Sr. No.	Net Income	Surcharge rate
1	Above INR 50 Lakhs but not exceeding INR 1 Crore (including income by way of dividend or income under section 111A and section 112A)	10%
2	Above INR 1 Crores but not exceeding INR 2 Crores (including income by way of dividend or income under section 111A and section 112A)	15%
3	Above INR 2 Crores but not exceeding INR 5 Crores (excluding income by way of dividend or income under section 111A and section 112A)	25%
4	Above INR 5 Crores (excluding income by way of dividend or income under section 111A and section 112A)	37%

However, the surcharge will be leviable @ 15% if both the following conditions are satisfied –

1. The net income (including income by way of dividend or income under section 111A and section 112A) exceeds INR 2 Crores; and

2. Is not covered under sr. no. 3 or sr. no. 4 of the table above.

Surcharge rates for individual, Hindu Undivided Family (HUF), Association of Person (AOP), Body of Individuals (BOI) and Artificial Judicial Person (has any income under section 115AD i.e. tax on income of foreign institutional investors) –

Sr. No.	Net Income	Surcharge rate
1	Above INR 50 Lakhs but not exceeding INR 1 Crore	10%
2	Above INR 1 Crores but not exceeding INR 2 Crores	15%
3	Above INR 2 Crores but not exceeding INR 5 Crores [excluding income by way of dividend or income referred under section 115AD(1)(b)]	25%
4	Above INR 5 Crores [excluding income by way of dividend or income referred under section 115AD(1)(b)]	37%

However, the surcharge will be leviable @ 15% if both the following conditions are satisfied –

1. The net income [including income by way of dividend or income referred under section 115AD(1)(b)] exceeds INR 2 Crores; and

2. Is not covered under sr. no. 3 or sr. no. 4 of the table above.

Surcharge rates for co-operative society –

Particulars	Surcharge rate
Total income exceeding INR 1 Crores	12%
Co-operative society has the option to pay tax as per section 115BAD of the Income Tax Act	10%

Surcharge rates for Firms (including LLP) and local authority –

Particulars	Surcharge rate
Total income exceeding INR 1 Crores	12%

Surcharge rates for the domestic company –

Particulars	Surcharge rate
Above INR 1 Crore but not exceeding INR 10 Crores	7%
Above INR 10 Crores	12%

However, if the domestic company exercises the option either under section 115BAA or under section 115BAB of the Income Tax Act, then, a surcharge of 10% will be leviable.

Surcharge rates for the foreign company –

Particulars	Surcharge rate
Above INR 1 Crore but not exceeding INR 10 Crores	2%
Above INR 10 Crores	5%

Marginal relief on surcharge –

As seen above, the surcharge is a tax payable on income tax on crossing specified threshold limits. Accordingly, there are chances that a minor increase in income (resulting into crossing the specified limit) may lead to an increase in tax liability to a great extent.

To overcome the same, the concept of marginal relief on surcharge was introduced. Putting in simple terms, marginal relief provides relief from the levy of surcharge (marginally and not fully) as and when the taxable income marginally crosses the specified threshold limit.

In nutshell, marginal relief ensures that the amount of increase in income tax is not more than the amount of increase in income.

Let us understand the basic concept of marginal relief with the help of a simple example –

Supp. Income of Mr. A is INR 50,10,000. As the income is above INR 50 Lakhs but not exceeding INR 1 Crore, a surcharge of 10% will be payable. The calculation of marginal relief is explained in the table below –

Particulars	Amounts
Tax on total income of INR 50,10,000	INR 13,15,500
Surcharge @10%	INR 1,31,550
Total tax including surcharge	INR 14,47,050
Tax on total income of INR 50,00,000	INR 13,12,500
Additional tax payable because of a marginal increase in income of INR 10,000	INR 1,34,550
Marginal relief (additional tax payable – additional income) (INR 1,34,550 – INR 10,000)	INR 1,24,550
Surcharge applicable (INR 1,31,550 – INR 1,24,550)	INR 7,000

In the above example, increase in income of INR 10,000 was resulting into additional tax payment of INR 1,34,550. Accordingly, based on marginal relief of INR 1,24,550, the surcharge leviable was only INR 7,000 instead of INR 1,31,550.

Frequently Asked Questions (FAQs) –

Some of the relevant Frequently Asked Question with regard to a surcharge on income tax is highlighted hereunder –

1. What is called surcharge?

A surcharge is an extra payment/ additional charge which is over and above the usual payment. It is levied for a specific reason.

2. What is surcharge in income tax?

A surcharge is an additional charge/ tax which is levied on a tax. The surcharge is leviable when the net income exceeds the specified threshold limit.

3. Is surcharge on total income or taxable income?

The surcharge is a tax on tax and hence the same is levied on tax payable and not on the income generated.

4. How is surcharge calculated on income tax?

The surcharge is to be calculated in the following manner –

Suppose, Net income of an individual taxpayer is – INR 57,00,000/-

Tax payable on the same will be – INR 15,22,500/-

Surcharge payable will be 10% on INR 15,22,500 – INR 1,52,250/-

Total tax payable including surcharge will be (INR 15,22,500 + INR 1,52,250) – INR 16,74,750/-

5. What is surcharge on income above 50 Lakhs?

As and when the income of the individual or HUF or AOP or BOI exceeds INR 50 Lakhs but doesn’t exceed INR 1 Crore. Then, a surcharge at the rate of 10% gets applicable.

6. Is it compulsory to pay surcharge?

Yes, if the income exceeds the specified threshold limit as prescribed under income tax, then, the payment of the surcharge is mandatory.

7. Who is eligible for surcharge?

A surcharge on income tax is applicable in case the income of the individual crosses INR 50 Lakhs or the income of the company crosses INR 1 Crore. Different surcharge rates are prescribed depending upon the different categories of a taxpayer under Income Tax.

8. What is marginal surcharge?

The surcharge is applicable/ leviable on income exceeding specified threshold limits. Accordingly, it may happen that a minor increase in income may lead to an increase in tax liability to a great extent. In order to balance the same, marginal relief is provided under income tax.