If you fall under the higher income tax bracket of 30%, you may be subject to an additional surcharge on your tax liability beyond a certain threshold. Simply put, a surcharge is an extra tax imposed on individuals earning above a specified limit.

The government has implemented this surcharge to ensure that high-income earners contribute more towards taxes compared to lower-income groups. Additionally, marginal relief is available to certain taxpayers to ease the impact of the surcharge. Let’s explore these provisions in detail:

Budget 2025 Update

For the financial year 2025-26 (effective from April 1, 2025), the rebate limit has increased from Rs. 25,000 to Rs. 60,000. Consequently, marginal relief, which was previously applicable to incomes slightly above Rs. 7,00,000, will now extend to incomes exceeding Rs. 12,00,000.

Surcharge on Income Tax

A surcharge is an additional levy on income tax, applicable to taxpayers with higher annual earnings. It is charged over and above the regular tax liability. We provide the best ITR Filing services.

Current Surcharge Rates for Various Taxpayers

As per the Income Tax Act, 1961, different surcharge rates apply based on the taxpayer category. Notably, starting from April 1, 2023, the highest surcharge rate of 37% under the new tax regime has been reduced to 25%.

Surcharge Rates for Individuals, HUFs, AOPs, BOIs, and Artificial Judicial Persons:

Net Taxable Income	Surcharge Rate (Old Tax Regime)	Surcharge Rate (New Tax Regime)
Less than Rs. 50 lakh	Nil	Nil
More than Rs. 50 lakh up to Rs. 1 crore	10%	10%
More than Rs. 1 crore up to Rs. 2 crore	15%	15%
More than Rs. 2 crore up to Rs. 5 crore	25%	25%
More than Rs. 5 crore	37%	25%

Note: Under the Budget 2023, the highest surcharge rate in the new tax regime has been reduced to 25% from 37%, effective April 1, 2023.

Additional provisions:

• AOPs with only corporate members are subject to a 15% surcharge if their income exceeds Rs. 1 crore.
• Long-term capital gains (LTCG) on listed equity shares, units, etc., have a capped surcharge of 15%.

Surcharge Rates for Domestic Companies

Net Taxable Income	Surcharge Rate (Normal Provisions)	Surcharge Rate (Section 115BAA/115BAB)
Less than Rs. 1 crore	–	10%
More than Rs. 1 crore up to Rs. 10 crore	7%	–
More than Rs. 10 crore	12%	–

Under Section 115BAA/115BAB, a 10% surcharge is levied without any threshold, and no marginal relief is available.

Surcharge Rates for Foreign Companies

Net Taxable Income	Surcharge Rate
More than Rs. 1 crore up to Rs. 10 crore	2%
More than Rs. 10 crore	5%

Surcharge Rates for Firms, LLPs, and Local Authorities

For firms, LLPs, and local authorities with an annual income exceeding Rs. 1 crore, a 12% surcharge applies.

Marginal Relief for Firms, LLPs, and Local Authorities

If the total income surpasses Rs. 1 crore, a 12% surcharge is imposed. However, marginal relief is provided to ensure that the total tax liability (including surcharge) does not exceed the tax payable on Rs. 1 crore by more than the excess income.

For instance, if a firm earns Rs. 1.01 crore, its tax liability (including a 12% surcharge) would be Rs. 32,24,000, whereas, for Rs. 1 crore income, the tax would be Rs. 31,20,000. This means for an extra Rs. 1,00,000 earned, the firm pays Rs. 1,04,000 in tax, making it eligible for marginal relief of Rs. 4,000 (Rs. 1,04,000 minus Rs. 1,00,000).

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Frequently Asked Questions (FAQs)

Q1: What is an income tax surcharge?
A surcharge is an extra tax levied on individuals and entities with high taxable income, above specific thresholds, in addition to the standard income tax liability.

Q2: How is a surcharge different from regular income tax?
While regular income tax is applicable to all taxpayers, a surcharge is imposed only on those earning above a set limit, ensuring higher contributions from high-income earners.

Q3: What is the highest surcharge rate under the new tax regime?
As per Budget 2023, the highest surcharge rate under the new tax regime has been reduced from 37% to 25%, effective April 1, 2023.

Q4: Is there any surcharge for individuals earning less than Rs. 50 lakh?
No, individuals with an annual income below Rs. 50 lakh are not subject to any surcharge.

Q5: What is marginal relief in income tax surcharge?
Marginal relief ensures that the tax payable (including surcharge) does not exceed the tax liability on Rs. 1 crore by more than the income exceeding Rs. 1 crore, providing a benefit to certain taxpayers.

Q6: Does a surcharge apply to firms and LLPs?
Yes, a surcharge of 12% is applicable for firms and LLPs with a total income exceeding Rs. 1 crore. Marginal relief is available under specific conditions.

Q7: Are foreign companies subject to a surcharge?
Yes, foreign companies are liable to pay a surcharge at the rate of 2% for incomes between Rs. 1 crore and Rs. 10 crore, and 5% for incomes exceeding Rs. 10 crore.

Q8: Is the surcharge applicable under both old and new tax regimes?
Yes, the surcharge is applicable under both regimes, but the highest surcharge rate under the new tax regime has been reduced to 25% as per Budget 2023.

Q9: How does the surcharge on long-term capital gains (LTCG) work?
For LTCG arising from listed equity shares, equity mutual funds, and similar assets, the surcharge is capped at 15% to ensure fair taxation.

Q10: What is the impact of the Budget 2025 update on marginal relief?
The rebate limit increase from Rs. 25,000 to Rs. 60,000 has extended marginal relief to incomes exceeding Rs. 12,00,000, benefiting more taxpayers.