Income Tax Surcharge For AY 2024-25

Income Tax Surcharge For AY 2024-25Income Tax Surcharge For AY 2024-25: What are the New Surcharge Rates for Different Taxpayers? What is Marginal Relief? Learn All Such Details Here.

A surcharge is an additional fee or tax added on top of the base price of a good or service.

It is an extra charge that gets tacked on to the initially quoted cost. A surcharge is separate from the original listed price as well as any standard taxes applied.

What is an Income Tax Surcharge?

An income tax surcharge is a supplemental charge levied on top of one’s regular income tax amount owed.

In the tax code, there is a provision for applying a surcharge for individuals with very high incomes that fall into the highest tax bracket.

Specifically, if an individual’s taxable income exceeds 50 lakh rupees, they may be subject to paying an extra surcharge percentage on the income tax they owe.

For corporations, the income threshold for the surcharge is 1 crore rupees. The surcharge essentially acts as an additional tax on those with the highest earnings or profits in a given year.

Income Tax Surcharge For AY 2024-25: New Surcharge Rates for Different Taxpayers

Under the Income Tax Act of 1961, various surcharge rates are applied to different categories of taxpayers. The surcharge percentage levied is determined by the taxpayer’s total taxable income amount.

From April 1, 2023, there will be changes to the maximum surcharge rate as part of the new tax regime. Previously, the highest surcharge rate was 37%, applicable to taxpayers with extremely high incomes. However, the new tax rules will reduce this top surcharge rate to 25%.

This adjustment to the maximum surcharge percentage aims to provide some tax relief for the highest income earners. Other surcharge rates for lower income tiers may remain unchanged or could also be modified under the revised tax code going into effect next fiscal year.

Surcharge Rates for Individual/HUF/AOP/BOI/ Artificial Judicial Person

Net Taxable Income limit

Surcharge Rate on the amount of income tax

under old tax regime

Surcharge Rate on the amount of income tax

under new tax regime

Less than Rs 50 lakhs

Nil

Nil

More than Rs 50 lakhs ≤  Rs 1 Crore

10%

10%

More than Rs 1 Crore ≤  Rs 2 Crore

15%

15%

More than Rs 2 Crore ≤  Rs 5 Crore

25%

25%

More than Rs 5 Crore

37%

25%

The Budget 2023 has introduced changes to the surcharge rates under the new tax regime, effective from April 1, 2023 (Financial Year 2023-24). One key update is the reduction of the highest surcharge slab from 37% to 25%. This revised maximum surcharge rate of 25% will now apply to taxpayers with extremely high incomes.

Additionally, the budget has addressed surcharge rates for specific entity types:

  • For Association of Persons (AOPs) comprising only corporate members, the surcharge has been capped at 15% on total incomes exceeding Rs 2 crores during the financial year.
  • For long-term capital gains (LTCG) arising from the sale of listed equity shares, units, etc., the applicable surcharge has been limited to a maximum of 15%.

These surcharge modifications aim to rationalize and streamline the tax structure, providing relief to certain high-income individuals and entities while targeting specific income sources.

Surcharge Rates for Domestic Company

Net Taxable Income limit Surcharge Rate on the amount of income tax under normal provisions Surcharge Rate on the amount of income tax us 115BAA or 115BAB
Less than Rs.1 Crores 10%*
More than Rs 1 Crore ≤  Rs 10 Crore 7%
More than Rs.10 Crores 12%

Regarding the surcharge applicable on income tax computed under sections 115BAA or 115BAB of the Income Tax Act, a flat rate of 10% surcharge will be levied. This surcharge rate of 10% does not have any minimum taxable income threshold requirement.

As a result, all individuals or entities opting for the tax regime under these sections will be subject to the 10% surcharge, regardless of their total income amount. There is no relief or exemption provided in terms of a basic income level below which the surcharge would not apply.

The 10% surcharge will be imposed universally on the computed income tax liability for those availing the sections 115BAA or 115BAB tax provisions.

Surcharge Rates for Foreign Company

Net Taxable Income limit Surcharge Rate on the amount of income tax
More than Rs 1 Crore ≤  Rs 10 Crore 2%
More than Rs.10 Crores 5%

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Surcharge rates for Firm/ LLP/ Local Authority

For individuals or entities with a total taxable income that surpasses the threshold of 1 crore rupees, an additional surcharge becomes applicable on the computed income tax amount.

This surcharge rate is set at 12% of the calculated income tax liability. Once the total income crosses the 1 crore mark, the taxpayer is mandated to pay the 12% surcharge on top of their regular income tax dues.

What is Marginal Relief?

Marginal relief provides a cap or limit on the total amount of surcharge payable in cases where the surcharge exceeds the additional income that made the individual liable for the higher surcharge rate.

This relief ensures that the combined income tax and surcharge does not exceed the tax liability of the next lower income tier by more than the marginal income amount.

The marginal relief mechanism prevents a steep increase in the overall tax burden simply due to crossing a particular income threshold.

The net income ranges and corresponding marginal relief provisions are as follows:

Net Income Range Marginal Relief
Exceeds (Rs.)

Does not exceed (Rs.)

50 Lakh 1 Crore Amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of Rs 50 Lakh by more than the amount of income that exceeds Rs 50 Lakhs
1 Crore 2 Crore Amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore
2 Crore 5 Crore Amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2 crore
5 Crore   – Amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 5 crore by more than the amount of income that exceeds Rs. 5 crore.

What is the Health and Education Cess?

In addition to income tax and the surcharge, taxpayers are also required to pay a Health and Education Cess.

This cess is levied at a flat rate of 4% on the total of the income tax amount plus any applicable surcharge. The proceeds from this cess contribute to funding health and education initiatives.

Marginal Relief for Individual Taxpayers

The Indian income tax laws provide for marginal relief to certain individual taxpayers to mitigate the impact of the surcharge on their tax liability. This relief applies in specific income ranges where the surcharge amount would otherwise exceed the marginal income over the threshold. The two key cases are:

Case 1: Total Income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore

In this income range, individuals are required to pay a surcharge of 10% on the computed income tax amount. However, to prevent a sudden and significant increase in the overall tax liability simply due to crossing the Rs. 50 lakh income threshold, the law provides for marginal relief.

The marginal relief works as follows:

The total amount payable as income tax and surcharge shall not exceed the total tax payable on a total income of Rs. 50 lakhs, by more than the amount of income that exceeds Rs. 50 lakhs.

For example, consider an individual with a total income of Rs. 51 lakhs in the financial year 2023-24. Without marginal relief, their tax liability (including the 10% surcharge) would be Rs. 14,76,750. However, if their income was just Rs. 50 lakhs, the tax payable would have been Rs. 13,12,500 (excluding cess).

In this scenario, the marginal relief kicks in to provide a cap on the maximum tax payable. The individual’s tax liability is reduced by the difference between the excess tax payable on the income above Rs. 50 lakhs (Rs. 14,76,750 – Rs. 13,12,500 = Rs. 1,64,250) and the amount of income that exceeds Rs. 50 lakhs (Rs. 51,00,000 – Rs. 50,00,000 = Rs. 1,00,000). Thus, the marginal relief amount is Rs. 64,250 (Rs. 1,64,250 – Rs. 1,00,000).

Consequently, the individual’s income tax liability on a total income of Rs. 51 lakhs, after applying marginal relief, is capped at Rs. 14,12,500 (excluding cess).

Case 2: Total Income exceeds Rs. 1 crore but does not exceed Rs. 2 crores

In this higher income range, a surcharge of 15% is levied on the computed income tax amount. Similar to the previous case, marginal relief is provided to limit the increase in tax liability for incomes marginally above Rs. 1 crore.

The marginal relief ensures that the total amount payable as income tax and surcharge shall not exceed the total tax payable on a total income of Rs. 1 crore, by more than the amount of income that exceeds Rs. 1 crore.

As an illustration, consider an individual with a total income of Rs. 1.01 crores in a financial year. Without marginal relief, their tax liability (including the 15% surcharge) would be Rs. 32,68,875. However, if their income was exactly Rs. 1 crore, the tax payable would have been Rs. 30,93,750.

In this case, the marginal relief limits the maximum payable amount to the tax on Rs. 1 crore plus the income exceeding Rs. 1 crore. The individual’s tax liability is reduced by the difference between the excess tax payable on the income above Rs. 1 crore (Rs. 1,75,125) and the amount of income that exceeds Rs. 1 crore (Rs. 1,00,000). Thus, the marginal relief amount is Rs. 75,125 (Rs. 1,75,125 – Rs. 1,00,000).

After applying marginal relief, the individual’s income tax liability on a total income of Rs. 1.01 crores is capped at the tax payable on Rs. 1 crore plus the income exceeding Rs. 1 crore (Rs. 30,93,750 + Rs. 1,00,000 = Rs. 31,93,750), excluding any applicable cess.

Marginal Relief for Firms/LLP/Local Authorities

For firms, limited liability partnerships (LLPs), and local authorities with a total income exceeding Rs. 1 crore, a surcharge of 12% will be imposed on the income tax payable.

However, these taxpayers will receive marginal relief to ensure that the total tax payable (including the surcharge) on their higher income does not exceed the tax payable on an income of Rs. 1 crore by more than the amount by which their income exceeds Rs. 1 crore.

To illustrate, consider a firm with a total income of Rs. 1.01 crores. The income tax payable, inclusive of the 12% surcharge, would be Rs. 32,24,000. If the firm’s total income were only Rs. 1 crore, the tax payable would have been Rs. 31,20,000. In this case, the firm would end up paying an additional Rs. 1,04,000 in tax for earning an extra Rs. 1,00,000.

To address this, the firm will receive marginal relief equal to the difference between the excess tax payable on the higher income (Rs. 1,04,000) and the amount by which the income exceeds Rs. 1 crore (Rs. 1,00,000). In this example, the marginal relief would be Rs. 4,000 (Rs. 1,04,000 minus Rs. 1,00,000).

Marginal Relief for Companies

Marginal relief for companies is provided in two cases based on their total income levels.

Case 1: Companies with total income exceeding Rs. 1 crore but not surpassing Rs. 10 crore.

  • For domestic companies in this income bracket, a surcharge of 7% will be imposed on the income tax payable.
  • For foreign companies in this income bracket, a surcharge of 2% will be imposed on the income tax payable.
  • These companies will receive marginal relief to ensure that the total tax payable (including the surcharge) does not exceed the tax payable on an income of Rs. 1 crore by more than the amount by which their income exceeds Rs. 1 crore.

Case 2: Companies with total income exceeding Rs. 10 crores.

  • For domestic companies in this income bracket, a surcharge of 12% will be imposed on the income tax payable.
  • For foreign companies in this income bracket, a surcharge of 5% will be imposed on the income tax payable.
  • These companies will receive marginal relief to ensure that the total tax payable (including the surcharge) does not exceed the tax payable on an income of Rs. 10 crores by more than the amount by which their income exceeds Rs. 10 crores.

The marginal relief aims to prevent a situation where a company’s tax liability disproportionately increases for a relatively small increase in income beyond the specified thresholds of Rs. 1 crore and Rs. 10 crores.

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