Surcharge & Marginal Relief Calculation (Individual, HUF, AOP, BOI, AJP)

Surcharge and Marginal Relief Calculation [Individual, HUF, AOP, BOI, Artificial Juridical Person (AJP)]

The Article is confined to discuss the calculation of Surcharge and Marginal Relief thereon in case of Individual, HUF, AOP, BOI and Artificial Juridical person for AY 2022-23 and onwards

One can refer to the following link of article for applicable rates of surcharge for AY 22-23

https://taxguru.in/income-tax/rates-surcharge-case-individual-huf-aop-ajp.html

Surcharge : An additional tax on tax for assessee having income more than a prescribed limit.

Marginal Relief : It is applicable in case of all assessee where surcharge is applicable.

Marginal relief is provided to the assessee whenever the additional tax paid on any additional income exceeding the prescribed limit for applicability of Surcharge is more than the additional income itself.

Lets discuss the concept of surcharge and Marginal relief through some practical illustrations.

Here NTI denotes Net total income after deducting all the deductions available under Income Tax Act, 1961

Illustration 1

NTI = ₹ 50,10,000

Step 1 Tax on total income (Without CESS) = ₹ ₹13,15,500

Step 2 Applicable Surcharge = 10%

Total Tax = ₹13,15,500 + 10% = ₹14,47,050

Step 3 Tax on ₹50 Lakhs (Surcharge will not be applicable) = ₹ 13,12,500

Step 4 Income above ₹50 Lakhs = ₹10,000

Additional Tax for additional income

(Step 2-Step 3) = ₹1,34,550

Thus, Additional tax ( ₹1,34,550) > Additional Income (₹ 10,000)

So , Marginal Relief will be applicable.

Step 5 As per the concept of marginal relief tax on total income including surcharge can never be more than

Tax on ₹50 Lakhs + additional income.

Thus, here tax will be lower of following :-

1. Tax on ₹50,10,000 = ₹14,47,050

2. Tax on ₹50Lakhs + Additional income

(₹13,12,500 + ₹10,000) = ₹13,22,500

Thus the tax here will be = ₹13,25,500 +4% Cess

And Marginal relief provided is ₹ 1,21,550 ( ₹14,47,050 – ₹13,25,500)

Illustration 2

NTI = ₹ 1,01,00,000

Step 1 Tax on total income (Without CESS) = ₹ ₹28,42,500

Step 2 Applicable Surcharge = 15%

Total Tax = ₹28,42,500 + 15% = ₹32,68,875

Step 3 Tax on ₹1 Crore (Surcharge @ 10% will be applicable) = ₹ 30,93,750 ( ₹28,12,500 + 10%)

Step 4 Income above ₹ 1 crore = ₹1,00,000

Additional Tax for additional income

(Step 2-Step 3) = ₹ 1,75,125

Thus, Additional tax ( ₹1,75,125) > Additional Income (₹ 1,00,000)

So , Marginal Relief will be applicable.

Step 5 As per the concept of marginal relief tax on total income including surcharge can never be more than

Tax on ₹ 1 Crore + additional income.

Thus, here tax will be lower of following :-

1. Tax on ₹1,01,00,000 = ₹ 32,68,875

2. Tax on ₹ 1 Crore + Additional income

(₹30,93,750 + ₹1,00,000) = ₹ 31,93,750

Thus the tax here will be = ₹ 31,93,750 + 4% Cess

And Marginal relief provided is

₹ 75,125 ( ₹ 32,68,875 – ₹ 31,93,750)

Note : Generally, availability of Marginal relief should always be checked in case the surcharge is applicable and the total income is just a little bit more than ₹50 Lakhs/ ₹1Crore/₹2Crore/₹5Crore.

We can check this fact by taking following illustration into consideration.

Illustration 3

NTI = ₹ 4,80,00,000

Step 1 Tax on total income (Without CESS) = ₹ ₹1,42,12,500

Step 2 Applicable Surcharge = 25%

Total Tax = ₹1,42,12,500+ 25% = ₹1,77,65,625

Step 3 Tax on ₹ 2 Crore (Surcharge @ 15 % will be applicable) = ₹66,84,375  ( ₹58,12,500 + 15%)

Step 4 Income above ₹ 2 crore = ₹ 2.80 Crore

Additional Tax for additional income

(Step 2-Step 3) = ₹ 1,10,81,250

Thus, Additional tax ( ₹ 1,10,81,250) is NOT more than  Additional Income (₹ 2,80,00,000)

So , Marginal Relief will NOT be applicable.

Step 5 As per the concept of marginal relief tax on total income including surcharge can never be more than

Tax on ₹ 2 Crore + additional income.

Thus, here tax will be lower of following :-

1. Tax on ₹ 4,80,00,000 = ₹1,77,65,625

2. Tax on ₹ 2 Crore + Additional income

(₹66,84,375 + ₹2,80,00,000) =₹3,46,84,375

Thus the tax here will be = ₹1,77,65,625 + 4% Cess

And Marginal relief is NOT applicable here

Illustration 4

Lets take one more illustration . This time we will include in our total income , income from Long term capital gain under section 112A

NTI = ₹ 51,10,000

Out of which LTCG (112A) = ₹1,10,000 ( Applicable tax rate @10% above ₹1 lakhs)

Normal income = ₹50,00,000

Step 1 Tax on total income (Without CESS)

Tax on LTCG = ₹1000 (₹10,000*10%)

Tax on Normal income = ₹13,12,500

Total tax = ₹ 13,13,500

Step 2 Applicable Surcharge = 10%

Total Tax = ₹13,13,500 + 10% = ₹14,44,850

Step 3 Tax on ₹50 Lakhs (Surcharge will not be applicable).

Also assume that the income of ₹50 Lakhs include ₹1,10,000 as income under section 112A and remaining as normal income.

Tax on LTCG = ₹1000 (₹10,000*10%)

Tax on Normal income (₹ 48,90,000) = 12,79,500

Total tax = ₹ 12,80,500

Step 4 Income above ₹50 Lakhs = ₹1,10,000

Additional Tax for additional income

(Step 2-Step 3) = ₹ 1,64,350

Thus, Additional tax ( ₹1,64,350) > Additional Income (₹ 1,10,000)

So , Marginal Relief will be applicable.

Step 5 As per the concept of marginal relief tax on total income including surcharge can never be more than

Tax on ₹50 Lakhs + additional income.

Thus, here tax will be lower of following :-

1. Tax on ₹51,10,000 = ₹14,44,850

2. Tax on ₹50Lakhs + Additional income

(₹12,80,500 + ₹1,10,000) = ₹13,90,500 of in

Thus the tax here will be = ₹13,90,500 +4% Cess

And Marginal relief provided is ₹ 54,350 ( ₹14,44,850 – ₹13,90,500)

Thus the concept of marginal relief assures the assessee that in case the surcharge is applicable, in NO case  the amount of increase in income tax will more than the amount of increase in his total income.

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Disclaimer : This article is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.