If you fall under the higher income tax bracket (30%), you may be liable to pay an additional surcharge on your income tax liability beyond a certain threshold. Essentially, a surcharge is an extra tax imposed on taxpayers with higher incomes.
Purpose of the Surcharge
The government implements this surcharge to ensure that individuals with higher earnings contribute more towards income taxes compared to those with lower incomes. Additionally, there is a provision for marginal relief to mitigate the impact of the surcharge for certain taxpayers.
Key Updates
- Reduction in Highest Surcharge Rate: For income above ₹5 crores, the surcharge rate has been reduced from 37% to 25%, lowering the maximum marginal tax rate from 42.74% to 39%. This change applies under the new tax regime from April 1, 2023.
- Tax Rebate: A tax rebate on income up to ₹7 lakhs has been introduced in the new tax regime, meaning no tax is payable if your income is less than ₹7 lakhs.
Surcharge on Income Tax
A surcharge is an additional charge on the income tax payable by taxpayers with higher incomes during a particular financial year. Here are the current rates:
Surcharge Rates for Individual/HUF/AOP/BOI/Artificial Juridical Person
| Net Taxable Income | Surcharge Rate (Old Regime) | Surcharge Rate (New Regime) |
|---|---|---|
| Less than ₹50 lakhs | Nil | Nil |
| More than ₹50 lakhs ≤ ₹1 crore | 10% | 10% |
| More than ₹1 crore ≤ ₹2 crore | 15% | 15% |
| More than ₹2 crore ≤ ₹5 crore | 25% | 25% |
| More than ₹5 crore | 37% | 25% |
Note: The highest surcharge of 37% has been reduced to 25% under the new tax regime, effective from April 1, 2023.
Additional Notes
- AOPs with Only Companies as Members: 15% surcharge if the total income exceeds ₹1 crore.
- Long-Term Capital Gains (LTCG): Surcharge on LTCG from listed equity shares, units, etc., capped at 15%.
Surcharge Rates for Domestic Companies
| Net Taxable Income | Surcharge Rate (Normal Provisions) | Surcharge Rate (Sections 115BAA/115BAB) |
|---|---|---|
| Less than ₹1 crore | - | 10% |
| More than ₹1 crore ≤ ₹10 crore | 7% | 10% |
| More than ₹10 crore | 12% | 10% |
Surcharge Rates for Foreign Companies
| Net Taxable Income | Surcharge Rate |
|---|---|
| More than ₹1 crore ≤ ₹10 crore | 2% |
| More than ₹10 crore | 5% |
Surcharge Rates for Firms/LLPs/Local Authorities
For total income exceeding ₹1 crore, a surcharge of 12% is payable on the income tax computed.
Marginal Relief
Marginal Relief for Individuals: If total income exceeds ₹50 lakhs but is less than ₹1 crore, a 10% surcharge applies. Marginal relief reduces the excess tax burden for income slightly over ₹50 lakhs.
Marginal Relief for Firms/LLPs/Local Authorities: If total income exceeds ₹1 crore, a surcharge of 12% applies. Marginal relief ensures that the tax on income slightly over ₹1 crore does not become excessively burdensome.
Marginal Relief for Companies:
- Domestic Companies: For income between ₹1 crore and ₹10 crores, a 7% surcharge applies. For income over ₹10 crores, the surcharge is 12%.
- Foreign Companies: For income between ₹1 crore and ₹10 crores, a 2% surcharge applies. For income over ₹10 crores, the surcharge is 5%.
Conclusion
Understanding these provisions helps ensure compliance and effective tax planning. Stay updated with the latest changes to manage your tax liabilities efficiently.
