Surcharge in Taxation: Definition, Meaning, and Applicability

Introduction to Surcharge

If any individual falls in the higher income category, the Income Tax Department of India levies an additional charge known as surcharge rate. In other words, Surcharge in taxation is an extra percentage of tax levied on top of the standard tax rate.

If the net taxable income for any individual is more than 50 Lakhs, they fall under higher income category and surcharge shall be levied on them. However, the government also provides a marginal relief for any individual, firm or company paying a surcharge 

Net taxable income= Gross taxable income- Chapter VI-A deduction

Applicability of Surcharge 

The Income Tax Department has clearly defined the applicability of the surcharge. It applies to:

• Individuals
• Firms and
• Companies

The Net Taxable Income (NTI) for each of these entities varies significantly based on specific income slabs akin to tax brackets. 

Surcharge & Marginal Relief

Marginal relief is a provision under Income Tax Law designed to alleviate the tax burden on entities whose income slightly exceeds the threshold limit. It ensures that individuals who just cross the income slab do not face disproportionate tax increases compared to those in higher income brackets.

This relief prevents a small income increase from pushing someone into a higher surcharge bracket, thus reducing their tax liability and promoting fairness and transparency.

Current Surcharge

For income tax, under the old regime, individuals earning more than ₹50 lakhs and up to ₹1 crore face a 10% surcharge, while those earning over ₹1 crore and up to ₹2 crore are subject to a 15% surcharge. Individuals with incomes exceeding ₹2 crore but up to ₹5 crore have a 25% surcharge, and those earning more than ₹5 crore are taxed at a 37% surcharge. Under the new regime, the surcharges are similar except for individuals earning above ₹5 crore, where the surcharge is reduced to 25%. Firms with income over ₹1 crore are subject to a 12% surcharge in both regimes.

Domestic companies with income over ₹1 crore and up to ₹10 crore face a 7% surcharge, while those earning above ₹10 crore incur a 12% surcharge. International companies with income exceeding ₹1 crore but up to ₹10 crore are subject to a 2% surcharge, and those with income above ₹10 crore have a 5% surcharge.