What is Income Tax Surcharge and Marginal Relief?

A surcharge is defined as an additional charge over a certain charge like income tax. As we know, income tax is charged on Indian citizens earning an income in India and this tax is charged depending on the income bracket that the person belongs to. However, if your income is above a certain limit, then an additional income tax cover is applicable and this is known as an income tax surcharge.

For any individual with a net income of Rs. 50 lakh per annum, an additional surcharge is applicable according to the given rates.

Introduction of Income Tax Surcharge for Individuals

The basic income tax brackets have been defined by the government and those start from a net income of Rs. 2.5 lakh. All individuals earning between Rs. 2.5 lakh to Rs. 5 lakh have to pay an income tax of 5%. As the earnings go higher the income tax liable, too, goes to 10%, 15% and so on. However, above the threshold of Rs 50 lakh, the taxpayer is required to pay an additional surcharge over their applicable income tax. This income tax surcharge allows the rich to contribute more towards income tax than the poor.

Current Rates of Income Tax Surcharge

The current rates of income tax surcharge are as follows:

Rates of Income Tax Surcharge For Individuals:

Total Income	Rate of Surcharge applicable
Less than Rs. 50 Lakhs	No surcharge
Rs. 50 Lakhs to Rs. 1 Crore	10% on income tax
More than Rs. 1 Crore	15% on income tax

Rates of Income Tax Surcharge For Domestic Companies

Total Income	Rate of Surcharge applicable
Less than Rs. 1 Crore	No surcharge
Rs. 1 Crore to Rs. 10 Crore	7% on income tax
More than Rs. 10 Crore	12% on income tax

Rates of Income Tax Surcharge For Foreign Companies

Total Income	Rate of Surcharge applicable
Less than Rs. 1 Crore	No surcharge
Rs. 1 Crore to Rs. 10 Crore	2% on income tax
More than Rs. 10 Crore	5% on income tax

Calculation of Income Tax Surcharge

Surcharge on income tax is calculated according to the rates mentioned above. For example, a person having net income of Rs 50 lakh or above (after all deductions) will be liable to pay an income tax surcharge of 10% on the applicable income tax of 30% (according to tax brackets).

The Concept of Marginal Relief

Marginal relief is provided by the government on income tax surcharge for certain individuals in certain situations. For example, if a person has a net income of Rs. 51 lakh, then they’re liable to pay income tax surcharge. However if their net income would have been Rs. 50 lakh, the additional income surcharge would not be applicable. Thus, it seems unfair that a big sum of additional surcharge has to be paid for an extra income of just Rs. 1 lakh. The concept of marginal relief allows consideration for such cases.

Calculation of Marginal Relief

Let us look at how marginal relief is calculated using the same example we used above. For an income of Rs. 51 lakh, the applicable total tax, including 10% surcharge would be Rs. 14,76,750. However, if the person had an income of Rs 50 lakh, then there would be no surcharge and the tax liability would be Rs. 13,12,500, which is a whopping Rs. 1,64,240 lesser than before for an income difference of just Rs. 1 lakh.

In this case, the individual is eligible for a relief of the difference between the excess tax (Rs. 1,64,240) and the excessive income itself (Rs. 1,00,000). Thus the relief applicable would be Rs. 64,240 and hence the individual would only have to pay an income tax of Rs. 14,12,500.


DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.