Exploring the Impact of Surcharge on Income Tax: Insights into Surcharge Rates for High-Income Individuals and Companies
Last Updated : July 14, 2023, 10:55 a.m.
Do you pay a higher tax rate of 30%? If so, you must also pay an extra surcharge over some limit on your income tax liability. But what is a surcharge? Simply put, a surcharge on your income tax is an additional tax you may be required to pay if you have a high income beyond a particular limit.
The government introduced the surcharge provision to ensure that the rich contribute more towards the income tax than the poor. It also gives a specific marginal relief for a specific class of taxpayers on their surcharge. And you need to know all about the present surcharge rates in 2023.
Surcharge on Income Tax
A surcharge on income tax is the additional amount you pay with your income tax. It’s an additional tax imposed on you if you have a high flow of income during a specific financial year.
Current Surcharge Rates for Various Taxpayers
Under the Income Tax Act 1961, different surcharge rates are applied to different taxpayers. Before, the surcharge had been high, but from 1st April 2023, under the new tax regime, the high surcharge of 37% decreased to 25%.
Surcharge Rates for Artificial Judicial Person/BOI/AOP/HUF/Individual
| Net Taxable Income Limit | Surcharge Rate on the Amount of Income Tax |
|---|---|
| Less than Rs. 50 lakhs | NIL |
| More than Rs. 50 lakhs < Rs. 1 Crore | 10% |
| More than Rs. 1 Crore < Rs. 2 Crore | 15% |
| More than Rs. 2 Crore < Rs. 5 Crore | 25% |
| More than Rs. 5 Crore | 37% |
Important Information!
- An AOP, which has only companies as its members and whose entire income during a fiscal year has exceeded Rs. 2 Crores, must pay a surcharge of 15%.
- Surcharges on LTCG or long-term capital gains on listed units, equity shares, etc., come down to 15%.
Surcharge on Income Tax for Foreign Companies
| Net Taxable Income Limitation | Surcharge Rate on the Amount of Income Tax |
|---|---|
| More than Rs. 1 Crore < Rs. 10 Crore | 2% |
| More than Rs. 10 Crores | 5% |
Surcharge on Income Tax for Domestic Companies
| Net Taxable Income Limitation | Surcharge Rate on the Amount of Income Tax |
|---|---|
| More than Rs. 1 Crore < Rs. 10 Crore | 7% |
| More than Rs. 10 Crores | 12% |
Marginal Relief for Individuals
Case 1
If any taxpayer has a total income which is more than Rs. 50 lakhs but is below Rs. 1 Crore, then you will pay a surcharge of 10% on your computed income tax.
According to the income tax provisions, you might get a marginal relief up to an amount which is the difference between the amount of income more than Rs. 50 lakhs and the excess tax payable inclusive of surcharge, which is over Rs. 50 lakhs.
For instance, suppose in FY 2022-23, your total income had been Rs. 51 lakhs. In that case, you might have to pay a tax, including a 10% surcharge, which may amount to Rs. 14,76,750. But if you made Rs. 50 lakhs, then your tax liability, excluding cess, had been only Rs. 13,12,500. In this case, it can be extremely unfair if you pay extra income tax just because you earn an extra lakh. In that case, you will get a marginal relief of some amount. And then you also get a proportion of income tax liability on your income tax.
To help understand marginal relief better, you can go through another case given below.
Case 2
In this case, the total income is over Rs. 1 Crore but below Rs. 2 Crore.
Your surcharge will be 15% of your payable income tax at such a rate. And even with this total income, you will still get a marginal relief. And you might also end up paying a higher income tax for a little bit of extra income. Your marginal relief will also be the additional income tax minus your extra income.
Marginal Relief for Companies
Case 1
If a domestic company has a total income of over Rs. 1 Crore but less than Rs. 10 Crore, there is a 7% surcharge on income tax. For foreign companies whose total income is over Rs. 1 Crore but under Rs. 10 Crore, the surcharge on income tax is only 2%.
For such companies, the marginal relief is only provided if the payable income tax plus surcharge does not exceed the income tax payable on a crore by more than the income amount exceeding Rs. 1 Crore.
Case 2
If the total income of a domestic company is over Rs. 10 Crores, then the surcharge on income tax constitutes 12%. On the same note, if foreign companies have a total income exceeding Rs. 10 Crores, then the surcharge on income tax is 5%. Even in this case, marginal relief will only be provided if both the payable income tax and surcharge do not go over the income tax payable alone on Rs. 10 Crores by more than the income which goes over Rs. 10 Crore.
Marginal Relief for Firms
A surcharge on income tax of 12% is levied on the payable income tax when the total income is over a crore. A marginal relief is provided to you if you make more than Rs. 1 Crore, and your income tax plus surcharge should not exceed the payable income tax. It gets simplified when the income is Rs. 1.01 Crore, and the individual or firm has to pay a surcharge of 12% on the computed tax. The total payable tax turns out to be Rs. 32,24,000. And since the firm earns an extra Rs. 100,000, it will also pay an income tax of Rs. 1,04,000.
At that point, the firm or the individual will get a marginal relief of the difference between the extra income and the payable income tax. In this case, it will be Rs. 4,000.
Conclusion
When you are a high-income individual or a company, then it becomes necessary for you to know not only your income tax but also the surcharge liable for it. And if there is a payable surcharge, you also need to know and avail of the marginal relief. The extra surcharge for any additional income can seem unfair without marginal relief. Hence, the marginal relief provides a balance for the surcharge payable.