What is an Income Tax Surcharge?
In India, the income tax system places a higher burden on the wealthy through an additional “tax on tax” known as a Surcharge. If your net taxable income exceeds a specific threshold (currently ₹50 Lakhs), you must pay a surcharge calculated as a percentage of your total income tax liability.
Surcharge Rates
The surcharge rate increases progressively as your income rises:
- ₹50 Lakhs to ₹1 Crore: 10% of Income Tax
- ₹1 Crore to ₹2 Crores: 15% of Income Tax
- ₹2 Crores to ₹5 Crores: 25% of Income Tax
- Above ₹5 Crores: 37% of Income Tax (capped at 25% under the New Tax Regime)
Marginal Relief
If your income just crosses a surcharge threshold (e.g., ₹51 Lakhs), the surcharge might cause your tax liability to increase by more than your actual additional income. To prevent this unfairness, the Income Tax Department provides Marginal Relief, ensuring the extra tax never exceeds the extra income.