Surcharge on Income Tax (with Examples)

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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 2019 which is applicable for Financial Year 2019-20. 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 IncomeSurcharge on Income Tax
Less than Rs. 50 LakhsNil
Rs. 50 Lakhs to Rs. 1 Crore10%
Rs. 1 Crore to Rs. 2 Crore15%
Rs. 2 Crore to Rs. 5 Crore
(Amended by Budget 2019)
25%
Rs. 5 Crores +
(Amended by Budget 2019)
37%

Firms, Co-operative Societies and Local Authorities

Level of IncomeSurcharge on Income Tax
Less than Rs. 1 CroresNil
More than Rs. 1 Crores12%

Domestic Company

Level of IncomeSurcharge on Income Tax
Less than Rs. 1 CroresNil
Rs. 1 Crores to Rs. 10 Crores7%
More than Rs. 10 Crores12%

Foreign Company

Level of IncomeSurcharge on Income Tax
Less than Rs. 1 CroresNil
Rs. 1 Crores to Rs. 10 Crores2%
More than Rs. 10 Crores5%

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 TaxpayerIncome Tax Rate
Individuals & HUFAs per Income Tax Slab Rates
Firms and Local AuthoritiesFlat 30%
Domestic Company – Turnover less than Rs. 250 CroreFlat 25%
Domestic Company – Turnover more than Rs. 250 CroreFlat 30%
Foreign CompanyFlat 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.

ParticularsTaxpayer ATaxpayer B
Total Taxable Income47,00,000Rs. 53,00,000
Total Tax payable as per Income Tax Slabs12,22,50014,02,500
Applicability of SurchargeNoYes
Surcharge @ 10%1,40,250
Total Tax payable (incl Surcharge)12,22,50015,42,750
Edu Cess @ 2% & SHEC @ 1%36,67546,282.50
Total tax Payable (after Edu Cess & SHEC)12,59,17515,89,033

Marginal Relief in case of levy of Surcharge on Income Tax

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

ParticularsAmountAmount
Total Taxable Income50,00,00051,00,000
Total Tax payable as per Income Tax Slabs13,12,50013,42,500
Applicability of SurchargeNoYes
Surcharge @ 10%1,34,250
Total Tax payable (incl Surcharge)13,12,50014,76,750
Increase in Tax Liability (excl Cess) due to Increase in Income1,64,250

In the above example, when the income is Rs. 50 Lakhs, Surcharge won’t be applicable. But if the income increases by Rs. 1 Lakh to Rs 51 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 1,64,250 (i.e. 14,76,750- 13,12,500). As the increase in total tax payable is more than the actual increase in income above Rs. 50 Lakhs, the concept of marginal relief would be applicable in this case.

Marginal Relief would be computed as follows:-

Increase in Tax (excl Cess)1,64,250
(14,76,750 – 13,12,500)
(Less)Income above Rs. 50 Lakhs1,00,000
Marginal Relief64,250

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

ParticularsIncome: 50 LakhsIncome: 51 Lakhs
Total Taxable Income50,00,00051,00,000
Total Tax payable as per Income Tax Slabs13,12,50013,42,500
Applicability of SurchargeNoYes
Surcharge @ 10% 1,34,250
(Less) Marginal Relief64,25070,000
Total Tax payable (incl Surcharge)12,97,50014,12,500
Edu Cess @2% and SHEC @ 1%39,37542,375
Total Tax payable (incl Surcharge & Cess)13,51,87514,54,875

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 is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.