Surcharge on Income Tax – Latest Rates

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The Finance Act 2013 introduced the levy of Surcharge on Income Tax on various categories of taxpayers. The rate of Surcharge have been increased in the Finance Act 2016 which is applicable for Financial Year 2016-17. Different rates of surcharge are applicable for different categories of taxpayers and the current rates of Surcharge are as follows:-

Category of Taxpayer Applicable if Income is Surcharge on Income Tax
Individual, HUFPartnership Firms, LLP etc More than Rs. 1 Crore 12%
Domestic Company More than 1 Crore but less than 10 Crores 7%
Domestic Company More than 10 Crores 12%
Other than Domestic Company More than 1 Crore but less than 10 Crores 2%
Other than Domestic Company More than 10 Crores 5%

Note: The Rate of Surcharge on Income Tax on Domestic and Foreign Companies is less as compared to Surcharge on Individuals as Domestic Companies and Foreign Companies are already being charged a higher rate of income tax as compared to Individuals.

Manner of Computation of Surcharge on Income Tax

It is pertinent to note that Surcharge is levied on the total income tax of the individual and not on the income of the individual. The criteria for income above 1 Crore is only to check whether the Surcharge would be levied or not.

If the Income is more than Rs. 1 Crore, the income tax payable would be computed as follows

Category of Taxpayer Income Tax Rate
In case of Individual: As per Income Tax Slab Rates
In case of Domestic Companies: Flat 30%
In case of Foreign Companies Flat 40%

Once the income tax has been computed, surcharge would be levied on the income tax. The following flowchart has been prepared for understanding of the applicability of Surcharge. The following flowchart is applicable for Individuals. Similar flowcharts can be prepared for other category of taxpayers as well.

Surcharge - 2016

For the purpose of computation of Income, the total taxable income under all heads after deductions under Chapter VI-A and Section 80C would be taken into account. Some examples of deductions allowed under Chapter VI-A & Section 80C at the time of filing of income tax returns are as follows:-

  1. PPF Account
  2. Tax Saving Fixed Deposit
  3. Tax Saving Mutual Funds
  4. Senior Citizen Savings Scheme
  5. National Savings Certificate
  6. Contribution to National Pension Scheme
  7. Contribution to Pension Funds
  8. Payment of Medical Insurance Premium
  9. Payment for treatment of specified disease
  10. Donations

The above list is only illustrative and there are many other deductions allowed under Chapter VI-A and Section 80C.

Examples of Levy of Surcharge on Income Tax

The following examples have been prepared assuming the taxpayer is a Individual and therefore Income Tax Slab Rates are applicable. In case of Domestic/Foreign Companies, Income Tax would be levied @ flat 30%/40% respectively.

Particulars Taxpayer A Taxpayer B
Total Taxable Income 97,00,000 Rs. 1,30,00,000
Total Tax payable as per Income Tax Slabs 2740000 3730000
Applicability of Surcharge No Yes
Surcharge @ 12% 447600
Total Tax payable (incl Surcharge) 2740000 4177600
Edu Cess @ 2% & SHEC @ 1% 82200 125328
Total tax Payable (after Edu Cess & SHEC) 2822200 4302928

Marginal Relief in case of levy of Surcharge on Income Tax

To explain the concept of Marginal Relief we are stating another example.

Particulars Income: 1 Crore Income: 1 Crore 1 Lakh
Total Taxable Income 10000000 10100000
Total Tax payable as per Income Tax Slabs 2830000 2860000
Applicability of Surcharge No Yes
Surcharge @ 12% 343200
Total Tax payable (incl Surcharge) 2830000 3203200
Increase in Tax Liability due to Increase in Income 373200

In the above example, when the income is Rs. 1 Crore, Surcharge won’t be applicable. But if the income increases by Rs. 1 Lakh to Rs 1 Crore 1 Lakh, Surcharge on Income Tax would be applicable.

Although the Income has only increased by Rs 1 Lakh, the total tax payable has increased by 3,73,200 (i.e. 31,46,000- 28,30,000). As the increase in total tax payable is more than the actual increase in income above Rs. 1 crore, the concept of marginal relief would be applicable in this case.

Marginal Relief would be computed as follows:-

Increase in tax payable 373200
Increase in Income 100000
Marginal Relief 273200

This marginal relief would be subtracted from the surcharge on Income Tax and would be as follows:-

Particulars Income: 1 Crore Income: 1 Crore 1 Lakh
Total Taxable Income 10000000 10100000
Total Tax payable as per Income Tax Slabs 2830000 2860000
Applicability of Surcharge No Yes
Surcharge @ 10%  343200
(Less) Marginal Relief 273200 70000
Total Tax payable (incl Surcharge) 2830000 2930000

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.