Surcharge on Income Tax

A surcharge is an additional income tax charge, applicable for high-income earners whose taxable income exceeds a specified threshold. It is calculated as a percentage of the total payable income tax, regardless if it is an individual or an entity like HUFs, AOPs, and BOIs.

The surcharge varies under the New and Old Tax Regimes, and marginal relief may apply to prevent excessive tax burdens for those just above the threshold.

Learn more about the surcharge on income tax, its marginal relief, and other aspects so that you can best benefit from it.

Surcharge on Income Tax for Individuals

The surcharge is applicable for taxpayers who have an income of more than ₹50 lakh in a financial year. It is a progressive rate; as higher the income level is, the higher the surcharge rates are.

The surcharge is added to the total income tax payable, not the total income. After the surcharge is added, a 4% Health & Education Cess is applied to the total tax (including the surcharge).

This is applicable to

• Individuals (including salaried and self-employed taxpayers)
• Hindu Undivided Families (HUFs)
• Associations of Persons (AOPs) and Body of Individuals (BOIs)

However, this is not applicable to companies, firms, and cooperative societies as they follow separate tax structures with different surcharge rates.

Surcharge Rates in New & Old Tax Regimes

Both New and Old Tax Regimes have the same surcharge rates, as there haven’t been any significant updates regarding this matter. However, in the New Regime, the maximum surcharge is capped at 25%, while in the Old Regime, it can go up to 37% for income above ₹5 crore. Different tax slabs have different surcharge rates.

Surcharge rates are based on total taxable income before adding cess. The table below shows applicable rates for FY 2024-25 (AY 2025-26):

• Surcharge applies only to the tax payable, not total income.
• In the New Regime, the surcharge is capped at 25% (even for incomes above ₹5 crore).
• For health & education, a cess of 4% applies after adding the surcharge.

Calculation of Surcharge

As explained, the surcharge is calculated as a percentage of income tax, not the total income.
The formula is:

For example, we are taking a case where the income is ₹1.5 crore. For ₹1.5 crore income, tax is the same in both regimes because the surcharge rates are identical at this level.

1. 1. Tax payable

Since this is a high income, the tax payable is ₹42 lakh. Read the tax calculation for further details.

1. 1. Surcharge Calculation(Extra Tax for High Earners)

For an income above ₹1 crore, a 15% surcharge applies.

15% of ₹42 lakh = ₹6.3 lakh (extra tax).

1. 1. Total Tax

Total tax before cess = ₹42 lakh + ₹6.3 lakh = ₹48.3 lakh

1. 1. Adding Cess(Government Welfare Tax)

The government adds a 4% Health & Education Cess to support public services.

4% of ₹48.3 lakh = ₹1.93 lakh.

1. 1. Final Tax Payable

₹48.3 lakh (tax + surcharge) + ₹1.93 lakh (cess) = ₹50.23 lakh.

This shows how a surcharge significantly increases tax liability. However, comparing the new regime vs. the old regime, the new regime benefits are applicable for people earning above ₹5 crore since the surcharge is capped at 25% instead of 37% in the old regime.

Concept of Marginal Relief

Marginal Relief is a tax benefit that prevents individuals from paying excessive tax due to a surcharge when their income slightly exceeds a surcharge threshold. This ensures that the additional tax payable due to the surcharge does not exceed the extra income earned over the threshold.

To understand its necessity, let’s use a case.

The surcharge applies instantly when someone’s income crosses ₹50 lakh, ₹1 crore, ₹2 crore, or ₹5 crore limits. That means a person earning even ₹1 more than the ₹1 crore could face a much higher tax liability than someone earning just below it.

Marginal relief reduces the extra tax burden, making taxation fairer.

Calculation of Marginal Relief

Marginal tax relief is calculated using the following formula:

In our example, let us assume an individual earns ₹1.5 crore in FY 2024-25 under the Old Tax Regime.

1. 1. Calculation of tax before surcharge

Income Tax Payable = ₹42 lakh

1. 1. Surcharge addition

Since income exceeds ₹1 crore, a 15% surcharge applies.

Surcharge = ₹42 lakh × 15% = ₹6.3 lakh

Total Tax Before Cess = ₹42 lakh + ₹6.3 lakh = ₹48.3 lakh

1. 1. Cess addition

Cess = ₹48.3 lakh × 4% = ₹1.93 lakh

Final Tax Payable = ₹48.3 lakh + ₹1.93 lakh = ₹50.23 lakh

1. 1. Check Excess Income Over the Threshold

Threshold for 15% surcharge = ₹1 crore

Excess income over ₹1 crore = ₹50 lakh

1. 1. Compare Additional Tax vs. Additional Income

Extra tax due to surcharge = ₹6.3 lakh

Extra income above ₹1 crore = ₹50 lakh

Since ₹6.3 lakh < ₹50 lakh, marginal relief does not apply.

Please note that this is a typical situation and is forged purely for the purpose of understanding. Surcharge rates up to ₹2 crore are the same in both regimes—15%. This value is subject to change depending on other aspects of the tax calculation. For further details, it is requested to consult a financial expert.