Income Tax Surcharge Rate & Marginal Relief for AY 2025-26

Surcharge is tax calculated as a percentage of income tax already payable by the taxpayer. Usually, high income taxpayers are subjected to surcharge provisions under the Income Tax Act. 

Those taxpayers who have just crossed the threshold limits, thereby liable to pay surcharge can claim marginal relief. This article explains in details, the surcharge limits and rates under the old and new tax regime, and the concept of marginal relief with an example.

Surcharge on Income Tax

Income tax surcharge is an additional charge payable on income tax. It is an added tax on the taxpayers having a higher income inflow during a particular financial year.

Surcharge Rates for Individuals Under the Old Regime and New Regime

Note:

• Surcharge for AOPs having only companies as its members to 15%. It is applicable to AOPs whose total income during the financial year exceeds Rs 1 crores. 

Surcharge on Capital Gains - Illustration

Surcharge has been capped at 15% on dividend income and Capital gains covered under section 111A, 112 and 112A.

Lets understand this concept through an example:

Mr. A has earned the following income during the financial year 2024-25:

Business Income : Rs. 3 crores

Capital Gains u/s 112A: Rs. 50 lakhs

Capital Gains u/s 111A: Rs. 75 lakhs

Capital Gains u/s 112: Rs.1.25 crore

1. In this case, the total income of the assesee comes to Rs. 5.5 crores. If all of it were normal income, surcharge of 37% would be levied. 
2. But since there are capital gains income u/s 111A, 112A and 112, the maximum surcharge is capped at 15% irrespective of the level of capital gains income. 
3. The income other than capital gains income is Rs. 3 crores, for which 25% of surcharge is applicable.

Surcharge Rates for Company

* Surcharge @10% of income-tax computed under section 115BAA or section 115BAB would be leviable. Since there is no threshold limit for the applicability of surcharge, consequently, there would be no relief.

Surcharge Rates for Foreign Company

Surcharge rates for Firm/ LLP/ Local Authority 

Where the total income exceeds 1 crore, surcharge is payable at the rate of 12% of income-tax computed.

Marginal Relief for Individuals

Marginal relief is provided to prevent the instances of tax liability increasing disproportionately to income, due to surcharge becoming applicable on crossing of threshold limit. 

If your income goes slightly above the surcharge threshold, and the extra tax is more than the extra income earned, marginal relief helps you pay only the difference, not more than what you gained. Lets understand this concept now with examples.

Case 1: Where the total income* is more than Rs.50 Lakhs but does not exceed Rs.1 crore, the taxpayers have to pay a surcharge at the rate of 10% on the income tax computed. 
According to the Income-tax provisions, a marginal relief will be provided to certain taxpayers up to the difference between the excess tax payable (including surcharge) and the excess income over Rs.50 Lakhs.   
Suppose, an individual has a total income of Rs.51 Lakhs in a FY 2024-25.

• He will have to pay taxes inclusive of a surcharge of 10% on the tax computed i.e., total tax payable will be Rs. 14,76,750.
• But, if he would have earned only Rs.50 lakhs, then the tax liability would have been Rs.13,12,500 only (excluding cess). 
• Isn’t it unfair for the individual? For earning an extra Rs.1,00,000, he will end up paying income tax of Rs.1,64,250. The individual’s tax liability should be reduced to avoid any such excess tax payable. 
• The individual will get a marginal relief of the difference amount between the excess tax payable on higher income i.e (Rs.14,76, 750 minus Rs.13,12,500 = Rs.1,64,250 ) and the amount of income that exceeds Rs. 50 Lakhs i.e. (Rs.51,00,000 minus Rs.50,00,000 = Rs.1,00,000). 
• The marginal relief will be Rs.64,250 (Rs.1,64,250 minus Rs.1,00,000). 
• Hence, income tax liability on income of Rs. 51,00,000 will be Rs.14,12,500 (excluding cess)

Note : If tax is paid in new tax regime, surcharge implications would remain the same, but the income tax slab will change accordingly.

Case 2: Where the total income is more than Rs.1 crore but less than Rs. 2 crore

• A surcharge of 15% will be levied on the income tax payable.
•  A marginal relief will be provided to the taxpayer up to the amount of difference between the excess tax payable (including surcharge) on income above Rs.1 crore and the amount of income that exceeds Rs.1 crore. 
• Suppose, if the total income of an individual is Rs.1.01 crore in any FY, he will have to pay tax inclusive of a surcharge of 15% on the tax computed i.e., total tax payable will be Rs.32,68,875. 
• But, if he would have earned only Rs.1 crore, then the tax payable would have been Rs.30,93,750 only. For earning an extra Rs.1,00,000, he will end up paying income tax of Rs.1,75,125. 
• Hence, the individual will get a marginal relief of the difference amount between the excess tax payable on higher income i.e (Rs.1,75,125 ) and the amount of income that exceeds Rs.1 crore i.e. (Rs. 1,00,000, in this case). 
• The marginal relief will be Rs.75,125 (Rs.1,75,125 minus Rs.1,00,000).

Note: If tax is paid in the new tax regime surcharge would remain the same, but the income tax slab will change accordingly.

Marginal Relief for Firms/LLP/Local Authorities

Where the total income is more than Rs.1 crore, a surcharge of 12% will be levied on the income tax payable. A marginal relief will be provided to such taxpayers having a total income of more than Rs.1 crore i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore. To simplify, if the total income of a firm is Rs.1.01 crores, it will have to pay an income tax inclusive of a surcharge of 12% on the tax computed i.e., total tax payable will be Rs.32,24,000. But, if the total income would have been only Rs. 1 crore, then the tax payable would have been Rs.31,20,000 only. For earning an extra Rs.1,00,000, it will end up paying income tax of Rs.1,04,000.

Hence, the firm will get a marginal relief of the difference amount between the excess tax payable on higher income i.e. (Rs.1,04,000) and the amount of income that exceeds Rs.1 crore i.e. (Rs.1,00,000, in this case). The marginal relief will be Rs.4,000 (Rs.1,04,000 minus Rs.1,00,000).

Marginal Relief for Companies

Case 1: Where the total income of a domestic company is more than Rs.1 crore but does not exceed Rs.10 crore, a surcharge of 7% will be levied on the income tax payable.

Similarly, for foreign companies having total income more than Rs.1 crore but less than Rs. 10 crores,  a surcharge of 2% will be levied on the income tax payable.

Marginal relief will only be provided to such companies having a total income of more than Rs.1 crore but less than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.

Case 2: Where the total income of a domestic company is more than Rs.10 crores, a surcharge of 12% will be levied on the income tax payable.

Similarly, for foreign companies having total income more than Rs.10 crores,  a surcharge of 5% will be levied on the income tax payable.

Marginal relief will only be provided to such companies having a total income of more than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.10 crores by more than the amount of income that exceeds Rs.10 crores.