What is Surcharge | Definition | Calculation of Surcharge on Income Tax

Definition of Surcharge

Do you fall into one of the higher income tax categories, such as 30%? – If you answered yes, you’ll have to pay an extra Surcharge on your tax bill. In other words, ‘a surcharge on income tax is an additional tax imposed on taxpayers who earn more than a specific amount of money.

Surcharge

What is Surcharge?

The income tax Surcharge is applied to the tax, not the income. Various Income Slabs have different tax rates. There are also various kinds of categories, each with a different surcharge percentage.

With the provision, our government assures that the affluent pay a higher share of income taxes than the poor. For a certain group of taxpayers, it also gives a little reduction in the Surcharge.

The Finance Act of 2013 in India introduced the concept of a categorization-based surcharge on income tax for taxpayers. Surcharge levies will be increased in FY 2016-17, according to the Finance Act of 2016. The appropriate surcharge rates vary depending on a variety of factors such as the holding of the company/individual.

Please keep in mind that the surcharge is applied to the income tax, not the income itself. Before arriving at a figure based on rate slabs, deductions under various heads would be taken into consideration to determine income tax liabilities.

Income Tax Rates for FY 2021-22 & AY 2022-23

For distinct types of taxpayers and different sources of income, different Tax Rates have been imposed. Individuals, HUFs, AOPs, and BOIs are taxed at various slab rates. Companies, on the other hand, are taxed at a fixed rate, with the exception of certain defined incomes. This article will offer you information on the various tax rates that apply to different types of taxpayers.

What is Indirect Tax 

Tax Rates

For individual (resident or non-resident), an association of individuals,a HUF, a body of individuals, or any other artificial juridical person:

Tax Rates
Surcharge Tax Rates

Different Surcharge Percentages for Different Taxpayers

If the income is more than Rs.1 crore, a 12% Surcharge on the income tax paid for the popular group of taxpayers is levied, subject to marginal relief. Let’s take a look at the various surcharge percentages that apply to different types of taxpayers in India. This surcharge will be applied after the income tax has been calculated.

  • Individuals, HUF, Partnership Firms and LLPs: The surcharge on income tax is 12% if the income for a certain assessment year is Rs.1 crore or more.
  • Foreign companies (income more than Rs.10 crores): 5% is surcharge on income tax.
  • Foreign companies (income more than Rs.1 crore but less than Rs.10 crores): 2%is surcharge on income tax.
  • Domestic companies (income more than Rs.10 crores):12% issurcharge on income tax.
  • Domestic companies (income more than Rs.1 crore but less than Rs.10 crores): 7 % is surcharge on income tax.
Rate of Surcharge
Note: The additional surcharges of 25% and 37%, respectively, are not applied to income subject to tax under sections 111A, 112A, and 115AD. As a result, the maximum surcharge on tax due on such incomes will be 15%. However, there is a way to get some marginal relief from the surcharge in the following way. –
  • When net income exceeds Rs. 5 crore, marginal relief from surcharge is available so that the total amount payable as income tax and surcharge on total income of Rs. 5 crore does not exceed the total amount payable as income tax on total income of Rs. 5 crore by more than the amount of income that is greater thanfive crore rupees.
  • When net income exceeds Rs. 2 crore but not Rs. 5 crore, marginal relief from surcharge is available so that the total amount payable as income tax and surcharge on total income of Rs. 2 crore does not exceed the total amount payable as income tax on total income of 2 crore rupees by more than the amount of income that exceeds Rs. 2 crore.
  • When net income exceeds Rs. 1 crore but does not exceed Rs. 2 crore, marginal relief from surcharge is provided in such a way that the entire amount payable as income tax and surcharge on total income of Rs. 1 crore is not exceeded by more than the amount of income that surpasses Rs. 1 crore.
  • If net income exceeds Rs. 50 lakh but does not exceed Rs. 1 crore, the total amount due as income tax and surcharge cannot exceed the total amount payable as income tax on total income of Rs 50 lakh by more than the amount of income that is more than fifty lakh rupees.

GST Rates 2021 – 22

Surcharge on Income Tax

An income tax surcharge is a fee that is added to the tax bill. It is an additional tax imposed on taxpayers who have a higher income inflow within a certain fiscal year.

Surcharge Rates for Different Taxpayers

The Income Tax Act of 1961 establishes different surcharge rates for different taxpayers.

TaxpayerIncome LimitSurcharge Rate on the Amount of Income Tax
Domestic CompanyNet income exceeds Rs.1 Crore but doesn’t exceed Rs.10 Crores7%
Individual/HUF/AOP/BOI/ Artificial Judicial PersonNet income exceeds Rs.5 Crore37%
Individual/HUF/AOP/BOI/ Artificial Judicial PersonNet income exceeds Rs.2 Crore but doesn’t exceed Rs 5 crore25%
Individual/HUF/AOP/BOI/ Artificial Judicial PersonNet income exceeds Rs.1 Crore but doesn’t exceed Rs 2 crore15%
Individual/HUF/AOP/BOI/ Artificial Judicial PersonNet income exceeds Rs.50 Lakhs but doesn’t exceed Rs. 1 Crore10%
Firm/LLP/Local authorities/Co-operative SocietyNet income exceeds Rs.1 Crore12%
Domestic CompanyNet income exceeds Rs.10 Crores12%
Foreign CompanyNet income exceeds Rs.1 Crore but doesn’t exceed Rs. 10 Crores2%
Foreign CompanyNet income exceeds Rs.10 Crores5%

What is Direct Tax 

Marginal Relief for Individuals

  • If the total income* is more than Rs.50 lakhs but less than Rs.1 crore, the taxpayers must pay a 10% surcharge on the income tax computed.

*Total income refers to the net income after all deductions, often known as taxable income. (Here’s where you can figure out your taxes).

A marginal relief would be offered to certain taxpayers up to the amount of the difference between the excess tax payable (including surcharge) on income exceeding Rs.50 lakhs and the amount of income that exceeds Rs.50 lakhs, according to income-tax laws.

Assume that in FY 2020-21, an individual has a total income of Rs.51 lakhs.

  1. He will be required to pay taxes, as well as a 10% surcharge on the tax computed, for a total tax of Rs. 14, 76,750.
  2. However, if he had just earned Rs.50 lakhs, his tax burden would have been only Rs.13, 12,500 (excluding cess).
  3. Isn’t it inequitable to the individual? He would pay Rs.1, 64,250 in income tax for earning an extra Rs.1, 000,000. To prevent paying any excess tax, the individual’s tax liability should be lowered.  
  4. The difference between the excess tax owed on higher income (Rs.14,76,750 minus Rs.13,12,500 = Rs.1,64,250) and the amount of income exceeding Rs. 50 lakhs (Rs.51,00,000 minus Rs.50,00,000 = Rs.1,00,000) would be given to the individual as a marginal relief.
  5. There will be a slight alleviation of Rs.64, 250 (Rs.1, 64,250 minus Rs.1, 00,000).
  6. As a result, the income tax liability on a Rs. 51, 00,000 income will be Rs. 14, 12,500.
  • Where total income exceeds Rs. 1 crore but not exceeds Rs. 2 crore
  1. A 15% surcharge will be added to the amount of income tax that must be paid.
  2. If an individual’s total income is Rs.1.01 crore in any fiscal year, he will be required to pay tax plus a 15% surcharge on the tax computed, resulting in a total tax payable of Rs.32, 68,875. 
  3. The difference between the excess tax payable (including surcharge) on income beyond Rs.1 crore and the amount of income that exceeds Rs.1 crore would be given to the taxpayer as marginal relief.
  4. However, if he had just made Rs.1 crore, the tax due would have been only Rs.30, 93,750. He will pay Rs.1, 75,125 in income tax for earning an extra Rs.1, 000,000.
  5. There will be a marginal relief of Rs.75, 125 (Rs.1, 75,125 minus Rs.1, 00,000).

Income Tax Deductions

Marginal Relief for Firms

If your total income is greater than Rs.1 crore, you’ll have to pay a surcharge of 12% on your income tax. For taxpayers with a total income of more than Rs.1 crore, a marginal relief will be offered, meaning that the income tax payable (including surcharge) on the higher income cannot exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.

To put it another way, if a company’s total income is Rs.1.01 crores, it will have to pay income tax plus a surcharge of 12% on the tax computed, totaling Rs.32,24,000 in tax. However, if the entire revenue had been only Rs. 1 crore, the tax due would have been only Rs. 31, 20,000. It will have to pay Rs.1, 04000 in income tax as a result of earning an extra Rs.1, 000,000. As a result, the individual will receive a marginal tax reduction equal to the difference between the excess tax payable on higher income (Rs.1,75,125) and the amount of income above Rs.1 crore (Rs.1,75,125) (Rs. 1,00,000, in this case).

Marginal Relief for Companies

  • When a domestic company’s total income exceeds Rs.1 crore but does not exceed Rs.10 crore, a 7% surcharge will be applied to the income tax due.
    1. A surcharge of 2% on the income tax payable would be imposed on foreign enterprises with total income of more than Rs.1 crore but less than Rs.10 crore.
    1. Only companies with a total income of more than Rs.1 crore but less than Rs.10 crores will be eligible for marginal relief, which means that the income tax payable (including surcharge) on the higher income cannot exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.
  • If a domestic company’s total income exceeds Rs.10 crores, the income tax payment will be subject to a surcharge of 12%.
    1. Similarly, if a foreign company’s total income exceeds Rs.10 crores, it will be subject to a 5% surcharge on the income tax due.
    1. Only companies with a total income of more than Rs.1 crore but less than Rs.10 crores will be eligible for marginal relief, which means that the income tax payable (including surcharge) on the higher income cannot exceed the income tax payable on Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.

FAQs

Is it possible for an individual to seek marginal relief?

Yes, everyone who is subject to the surcharge is eligible for minor relief.

When will the surcharge for individuals be implemented?

Individuals with a net total income of more than 50 lakhs would be subject to a surcharge.

How does a surcharge levy?

One thing to keep in mind is that it is levied as a percentage of taxes, not income, whereas taxes are levied on earned income. In essence, it is a tax on top of a tax.

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