Income Tax Surcharge Rate & Marginal Relief

Do you come under one of the higher income tax brackets i.e. 30%? – If yes, you are liable to pay an additional surcharge on your Income Tax liability. To simplify, a surcharge on income tax is an extra tax to be paid by the taxpayers earning a higher income i.e., beyond a certain limit.

Our government ensures that with the surcharge provision, the rich contribute to the income taxes more than the poor. It also provides a marginal relief on the surcharge for a certain class of taxpayers. Let’s see the related provisions in detail:

Budget 2022 update
The FM proposes to restrict the 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 2 crores.

Also, the surcharge on long term capital gains(LTCG) on listed equity shares, units, etc., has been capped at 15%.

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 different taxpayers

There are different rates of surcharge applicable to different taxpayers under the Income Tax Act, 1961.

*In Budget 2022, FM proposes to restrict the 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 2 crores.

Also, the surcharge on long term capital gains(LTCG) on listed equity shares, units, etc., has been capped at 15%.

Marginal relief for individuals

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.

*Here total income means the net income after all possible deductions or the taxable income. (Calculate your taxes here.)

According to the Income-tax provisions, a marginal relief will be provided to certain taxpayers up to the amount of the difference between the excess tax payable (including surcharge) on the income above Rs.50 lakhs and the amount of income that exceeds Rs.50 Lakhs.
Suppose, an individual has a total income of Rs.51 Lakhs in a FY 2020-21.

• 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.

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).

Marginal relief for firms

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.

Frequently Asked Questions

Can marginal relief be claimed by an Individual?

Yes, marginal relief can be claim by all persons for whom surcharge is applicable.

When will be surcharge applicable for Individuals?

Surcharge will be applicable for individuals if the net total income exceeds 50 Lakhs

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