A surcharge is an additional charge, fee, or tax added by a company to the introductory price of the goods and services. However, a surcharge is primarily added to the existing tax and not levied on the product’s price or service.
But, what does the surcharge on income tax mean when talking about income tax? The surcharge is levied on the tax payable, but not on the income generated. If an individual earns a net taxable salary of 1 crore, a surcharge of 10% is levied on the income tax payable. It makes the total combined tax burden 33%.
The amount of surcharge varies depending upon the net income of the taxpayer. The surcharge calculation process is also different for individuals than for domestic or foreign companies. The surcharge for income between 50 lakhs and Rs. 1 crore is different from an individual with a net income exceeding 10 crores.
Learn the Basics
The Union government proposed increasing the surcharge on income tax for all high-net-worth individuals earning massively every year. The surcharge on income tax meaning has remained unchanged for individuals or companies earning between Rs. 50 lakhs to Rs. 1 crore, that is, 10% of surcharge is applicable.
However, for all the taxpayers earning between Rs. 1 crore to 2 crores, a 15% surcharge is levied per the Union Budget 2019.
Surcharge rates increased after it was proposed in the Union Budget 2019. Individuals or entities earning between 2 crores to 5 crores are liable to pay a surcharge on an income tax of 25% on annual income. If the annual income exceeds Rs. 5 crores, a surcharge of 37% is applicable for the financial year.
- An additional charge, also known as a surcharge, is a tax levied on tax.
- A surcharge is not paid on income generated. Instead, the taxpayer is liable to pay the surcharge on the existing tax payable.
- Individuals earning between Rs. 50 lakhs to Rs. 1 crore, are liable to pay a 10% surcharge. Those earning Rs. 1 crore to 2 crores must pay a surcharge of 15%. In contrast, from Rs. 2 crores to Rs. 5 crores, all the high-income earners need to pay an additional fee of @25%. However, a 37% surcharge is applicable for annual income earners above Rs. 5 crores.
- All domestic companies must pay a 7% surcharge if they earn between Rs. 1 crore to Rs. 10 crores. If these companies yield more than Rs. 10 crores annually, they are liable to pay a 12% surcharge.
Rate of Surcharge
|Type of the Taxpayer||Net Taxable Income||Rate of Surcharge on income tax|
|Domestic Companies||From Rs. 1 Crore to Rs.10 Crores||7%|
|Body of Individuals / Individuals/Hindu Undivided family / Association of Persons||From Rs. 50 Lakhs to Rs. 1 Crore||10%|
|Firm / LLP / Local Authorities / Co-operative Society||Above Rs. 1 Crore||12%|
|Domestic Companies||Above Rs. 10 Crores||12%|
|Body of Individuals / Individuals/Hindu Undivided family / Association of Persons||From Rs. 1 Crore to Rs. 2 crore||15%|
|Body of Individuals / Individuals/Hindu Undivided family / Association of Persons||From Rs. 2 Crore to Rs. 5 crore||25%|
|Body of Individuals / Individuals/Hindu Undivided family / Association of Persons||Above Rs. 5 Crore||37%|
The Concept of Marginal Relief
Individuals and firms with a total income of more than Rs. 50 lakhs and Rs. 1 crore annually are liable to pay the surcharge. However, in cases where a taxpayer’s income exceeds the limit marginally, they can be granted tax relief.
The concept of marginal relief protects the interest of these individuals.
1. Marginal Relief for Individuals
An individual is entitled to benefit from marginal relief and is not liable to pay any surcharge if their income marginally exceeds Rs. 50 lakhs for the financial year.
2. Marginal Relief for Companies
If a company earns between Rs. 1 crore and Rs. 10 crores, the income tax payable, including surcharge, on the higher income must not exceed the tax payable on Rs. 1 crore.
3. Marginal Relief for Firms
The firm can avail marginal relief on the difference between the excess tax payable on higher income and the amount exceeding Rs. 1 crore.
Ways to Save Tax
Want to eliminate your tax liabilities? Surely, all taxpayers are always finding one or the other way that could curb their taxable income and reduce the amount of surcharge on dividend income or any other source. Let’s dive in to find out how can you save tax:
1. Consider a List of Investment Tools
All the investments listed below can help you claim a deduction of up to Rs. 1.5 lakh from your taxable income. Investing in any of these schemes facilitates you to claim a tax rebate.
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Sukanya Samridhi Account
- Tax Savings Fixed Deposit
- Equity Linked Saving Scheme
- Senior Citizen Saving Scheme
- National Saving Certificate
2. Donate for a Good Cause
Making charity donations will help you get blessings from the needy and poor and lessen the burden of paying a higher income tax and surcharge. However, ensure that the institutions, NGOs, or political parties you are donating to give you 100% tax deductions by categorising under Section 80G of the ITA.
3. Accounts for Personal Expenses
Showing some personal expenses also makes you eligible for tax deductions such as treatment of specified diseases, tuition fees for self and children, and paying an insurance premium for mediclaim premium.
4. Get your Salary Restructured
There are many ways to save on tax even after earning an enormous amount annually. Restructuring your salary and accommodation allowances will let you save ample tax. The allowances that allow you to save tax significantly include house rent, conveyance, medical treatment, uniform, driver, telephone, personality development, and office entertainment.
These perks and allowances do not apply to every individual and may vary from person to person. Moreover, there is a specified limit of tax deductions available on these allowances.
Did You Know?
In the Union Budget 2022, our Finance Minister, Nirmala Sitharaman, proposed to curb the surcharge for Associations of Persons (AOPs). So, what does a surcharge on income tax mean for them? Surcharge, meaning in income tax, states that AOPs whose annual income exceeds Rs. 2 crores are liable to have companies as their members and pay a 15% surcharge instead of 25%.
Word to Remember
Health and Education Cess
Health and Education Cess are levied at 4%, on the tax payable as an additional fee or tax, only for the taxpayers who aid funding in government welfare programs, particularly those concerned with primary and secondary education and health infrastructure.
The surcharge plays an imperative role in controlling inflation and offsetting the cost of goods with higher prices, such as regulatory government fees, fuel, etc.
Whether a company or an individual, both are liable to pay a surcharge if their income exceeds Rs. 1 crore and Rs. 50 lakhs annually. However, to grant them some benefit by not letting them pay the surcharge, the concept of marginal relief was introduced by the government of India, stating that if their income exceeds Rs. 50 lakhs by a minimal amount, those individuals will not be liable to pay any surcharge on income tax.
Earlier surcharge on income tax was restrained at 15%. However, the new rates came into effect from the financial year 2020 (the assessment year 2020-2021).
Yes, a surcharge on income tax individuals is applicable. If the total taxable income exceeds Rs. 50 lakhs for the financial year, an individual must pay the additional fee or surcharge on the total tax they ought to pay for the financial year.
For taxpayers whose taxable income is beyond the threshold limit, an individual can claim marginal relief hassle-free when the surcharge is applicable.
Yes, all individuals can claim marginal relief for whom the surcharge is applicable.
Only companies earning between Rs. 1 crore to Rs. 10 crores can opt for the marginal relief option and save their money by not paying the surcharge. However, companies annually earning more than Rs. 10 crores are not allowed to claim marginal relief.
Predominantly, the tax is calculated after considering the anticipated income from the proposed investment. To get the economic marginal tax rate from investing, one needs to divide the difference in tax by the total income amount from the investment.