Income tax Surcharge – Applicability and Marginal Relief

Surcharge is an additional charge levied on tax if income or turnover crosses a limit as specified in tax law. They are used to ensure that the rich contribute more to the tax kitty than the poor.

Currently for financial year 2016-17, surcharge is levied at the rate of 15% of tax, if income exceeds 1 Crore rupees in case of an individual, HUF, AOP, BOI or artificial juridical person.

surcharge on income tax in india

Budget 2017 has now proposed to levy surcharge at rate of 10% of tax, if income exceeds 50 lakhs rupees and at the rate of 15% if income exceeds 1 Crore rupees in case of an individual, HUF, AOP, BOI or artificial juridical person.

This means, for the financial year 2017-18 an individual is required to pay surcharge if his or her income is between 50 lakhs and 1 Crore.

For Financial Year 2017-18

For Financial Year 2016-17

Taxable Income (In INR) Surcharge to be levied on Income tax Income (In INR) Surcharge to be levied on Income tax
Less than 50 Lakhs NIL Less Than 50 Lakhs NIL
50 Lakhs to 1 Crore 10% 50 Lakhs to 1 Crore NIL
More than 1 Crore 15% More than 1 Crore 15%

For a partnership firm, company, co-operative society etc, surcharge on tax will be different.

A domestic private or public limited company is required to pay surcharge on tax if it’s taxable income for the financial year 2016-17 is 1 Crore or more.

If income is between 1 Crore to 10 Crore, then surcharge on tax is 7%. If income is more than 10 Crore then the rate is 12%. Budget 2017 has no proposal to change these rates.

Taxable Income in INR

Surcharge for a

Domestic Company

Foreign Company

Less than 1 Crore

NIL

NIL

1 Crore to 10 Crore

7%

2%

More than 10 Crore

12%

5%

A firm, co-operative societies and local authorises will be levied surcharge at the rate of 12% only when income is more than 1 Crore rupees.

In above cases, please remember to charge surcharge on income tax of the person. It’s not levied on the total or taxable income. The Total/Taxable Income criteria as discussed above are only to check whether surcharge should be levied or not.

Total or taxable income is derived after taking total of the taxable incomes under all the 5 major heads and then by deducting deductions as available under chapter VI-A.

Cess will be levied on Income tax plus surcharge.

Table Showing calculation of surcharge (For FY 2017-18) – In Case of Individual

Particulars

Taxpayer 1

Taxpayer 2

Taxable Income 46,00,000 54,00,000
Tax Payable on above income 11,92,500 14,32,500
Applicability of Surcharge No Yes
Surcharge @10% NIL 1,43,250
Tax Plus Surcharge 11,92,500 15,75,750
Cess @ 3% 35,775 47,273
Total Tax Payable 12,28,275 16,23,023

Marginal Relief on Surcharge

To provide relaxation from levy of surcharge to a taxpayer in cases where the total income exceeds marginally above the limit as specified, government has introduced marginal relief concept.

According to this concept for the financial year 2017-18, if total income of an individual exceeded 50 lakh rupees but does not exceed 1 Crore rupees then the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of fifty lakh rupees by more than the amount of income that exceeds fifty lakh rupees.

Similarly, if total income of an individual exceeded 1 Crore rupees then the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of one Crore rupees by more than the amount of income that exceeds one Crore rupees.

Similarly, marginal relief is also applicable to companies, firms, co-operative societies etc.