Do you come under one of the higher income tax brackets i.e. 30%? – If yes, you are liable to pay an additional surcharge on your Income Tax liability. To simplify, a surcharge on income tax is an extra tax to be paid by the taxpayers earning a higher income i.e., beyond a certain limit.
Our government ensures that with the surcharge provision, the rich contribute to the income taxes more than the poor. It also provides a marginal relief on the surcharge for a certain class of taxpayers. Let’s see the related provisions in detail:
Income tax surcharge is an additional charge payable on income tax. It is an added tax on the taxpayers having a higher income inflow during a particular financial year.
There are different rates of surcharge applicable to different taxpayers under the Income Tax Act, 1961.
|
Taxpayer |
Income limit |
Surcharge Rate on the amount of income tax |
|
Individual/HUF/AOP/BOI/ Artificial Judicial Person |
Net income exceeds Rs.50 Lakhs but doesn’t exceed Rs. 1 Crore |
10% |
|
Individual/HUF/AOP/BOI/ Artificial Judicial Person |
Net income exceeds Rs.1 Crore but doesn’t exceed Rs 2 crore |
15% |
|
Individual/HUF/AOP/BOI/ Artificial Judicial Person |
Net income exceeds Rs.2 Crore but doesn’t exceed Rs 5 crore |
25% |
|
Individual/HUF/AOP/BOI/ Artificial Judicial Person |
Net income exceeds Rs.5 Crore |
37% |
|
Firm/LLP/Local authorities/Co-operative Society |
Net income exceeds Rs.1 Crore |
12% |
|
Domestic Company |
Net income exceeds Rs.1 Crore but doesn’t exceed Rs.10 Crores |
7% |
|
Net income exceeds Rs.10 Crores |
12% |
|
|
Net income exceeds Rs.1 Crore but doesn’t exceed Rs. 10 Crores |
2% |
|
|
Foreign Company |
Net income exceeds Rs.10 Crores |
5% |
Case 1: Where the total income* is more than Rs.50 Lakhs but does not exceed Rs.1 crore, the taxpayers have to pay a surcharge at the rate of 10% on the income tax computed.
According to the Income-tax provisions, a marginal relief
will be provided to certain taxpayers up to the amount of the difference
between the excess tax payable (including surcharge) on the income above Rs.50
lakhs and the amount of income that exceeds Rs.50 Lakhs.
Suppose, an individual has a total income of Rs.51 Lakhs in a FY 2020-21.
Case 2: Where the total income is more than Rs.1 crore but less than Rs. 2 crore
Where the total income is more than Rs.1 crore, a surcharge of 12% will be levied on the income tax payable. A marginal relief will be provided to such taxpayers having a total income of more than Rs.1 crore i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore. To simplify, if the total income of a firm is Rs.1.01 crores, it will have to pay an income tax inclusive of a surcharge of 12% on the tax computed i.e., total tax payable will be Rs.32,24,000. But, if the total income would have been only Rs. 1 crore, then the tax payable would have been Rs.31,20,000 only. For earning an extra Rs.1,00,000, it will end up paying income tax of Rs.1,04,000.
Hence, the firm will get a marginal relief of the difference amount between the excess tax payable on higher income i.e. (Rs.1,04,000) and the amount of income that exceeds Rs.1 crore i.e. (Rs.1,00,000, in this case). The marginal relief will be Rs. 4,000 (Rs.1,04,000 minus Rs.1,00,000).
Case 1: Where the total income of a domestic company is more than Rs.1 crore but does not exceed Rs.10 crores, a surcharge of 7% will be levied on the income tax payable.
Similarly, for foreign companies having total income more than Rs.1 crore but less than Rs. 10 crores, a surcharge of 2% will be levied on the income tax payable.
Marginal relief will only be provided to such companies having a total income of more than Rs.1 crore but less than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.
Case 2: Where the total income of a domestic company is more than Rs.10 crores, a surcharge of 12% will be levied on the income tax payable.
Similarly, for foreign companies having total income more than Rs.10 crores, a surcharge of 5% will be levied on the income tax payable.
Marginal relief will only be provided to such companies having a total income of more than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should not exceed the income tax payable on Rs.10 crores by more than the amount of income that exceeds Rs.10 crores.