Surcharge on Income Tax – Latest Rates

Share

Surcharge is levied on Income Tax and is levied if Income is more than Rs. 50 Lakhs in case of Individuals and Rs. 1 Crores in case of Companies. The rate of Surcharge has been increased in the Finance Act 2017 which is applicable for Financial Year 2017-18. Different rates of surcharge are applicable for different categories of taxpayers and the current rates of Surcharge are as follows:-

Individuals, HUF, Association of Persons, Body of Individuals, Artificial Judicial Persons

Level of Income Surcharge on Income Tax
Less than Rs. 50 Lakhs Nil
Rs. 50 Lakhs to Rs. 1 Crore 10%
More than Rs. 1 Crore 15%

 

Firms, Co-operative Societies and Local Authorities

Level of Income Surcharge on Income Tax
Less than Rs. 1 Crores Nil
More than Rs. 1 Crores 12%

 

Domestic Company

Level of Income Surcharge on Income Tax
Less than Rs. 1 Crores Nil
Rs. 1 Crores to Rs. 10 Crores 7%
More than Rs. 10 Crores 12%

 

Foreign Company

Level of Income Surcharge on Income Tax
Less than Rs. 1 Crores Nil
Rs. 1 Crores to Rs. 10 Crores 2%
More than Rs. 10 Crores 5%

 

Note: The Rate of Surcharge on Income Tax on Foreign Company 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. The rates of Income Tax have been mentioned on this link – Income Tax Rates in India

Manner of Computation of Surcharge on Income Tax

After the computation of Income, the next step is to calculate the Income Tax would be levied as per the following schedule

Category of Taxpayer Income Tax Rate
Individuals & HUF As per Income Tax Slab Rates
Firms and Local Authorities Flat 30%
Domestic Company – Private Limited Flat 25%
Domestic Company – Public Limited Flat 30%
Foreign Company Flat 40%

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 Rs. 50 Lakhs/ Rs. 1 Crore is only to check whether the Surcharge would be levied or not. Once the income tax has been computed, surcharge would be levied on the income tax.

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.

Particulars Taxpayer A Taxpayer B
Total Taxable Income 47,00,000 Rs. 53,00,000
Total Tax payable as per Income Tax Slabs 12,22,500 14,02,500
Applicability of Surcharge No Yes
Surcharge @ 10% 1,40,250
Total Tax payable (incl Surcharge) 12,22,500 15,42,750
Edu Cess @ 2% & SHEC @ 1% 36,675 46,282.50
Total tax Payable (after Edu Cess & SHEC) 12,59,175 15,89,032.50

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 49,50,000 50,50,000
Total Tax payable as per Income Tax Slabs 12,97,500 13,27,500
Applicability of Surcharge No Yes
Surcharge @ 10% 1,32,750
Total Tax payable (incl Surcharge) 12,97,500 14,60,250
Edu Cess @2% & SHEC @1% 38,925 43,807.50
Total Tax payable (incl Surcharge & Cess) 13,36,425 15,04,057.50
Increase in Tax Liability due to Increase in Income 1,67,632.50

In the above example, when the income is Rs. 49.50 Lakhs, Surcharge won’t be applicable. But if the income increases by Rs. 1 Lakh to Rs 50.50 Lakhs, Surcharge on Income Tax would be applicable.

Although the Income has only increased by Rs 1 Lakh, the total tax payable has increased by 1,67,632.50 (i.e. 15,04,057.50- 13,36,425). 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:-

Surcharge payable 1,32,750
(Less) Increase in Income 1,00,000
Marginal Relief 32,750

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

Particulars Income: 49.50 Lakhs Income: 50.50 Lakhs
Total Taxable Income 49,50,000 50,50,000
Total Tax payable as per Income Tax Slabs 12,97,500 13,27,500
Applicability of Surcharge No Yes
Surcharge @ 10%  1,32,750
(Less) Marginal Relief 32,750 1,00,000
Total Tax payable (incl Surcharge) 12,97,500 14,27,500
Edu Cess @2% and SHEC @ 1% 38,925 42825
Total Tax payable (incl Surcharge & Cess) 13,36,425 14,70,325

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.