A surcharge is an extra charge applied on top of the basic income tax payable. It is not a separate tax but is calculated as a percentage of the tax you already owe. This charge is generally applicable to those earning a high income and is imposed once their total taxable income crosses specific thresholds.
Taxpayers who fall just above the threshold may find that the extra surcharge makes their total tax liability increase significantly. To address this, the government provides something called marginal relief, which ensures the additional tax doesn’t outweigh the extra income earned. This article will help you understand how surcharge works under both the old and new tax regimes, explain the rates and limits applicable, and walk you through how marginal relief can help reduce the burden.
Here is a comprehensive guide to understanding surcharge rates on income tax in India.
What is surcharge on income tax?
A surcharge is an added tax amount that applies when your income crosses a certain limit. It is charged on the total income tax payable and not directly on your income. This means the more tax you owe, the more surcharge you may have to pay.
Surcharge usually applies to individuals, companies, or firms whose income goes beyond Rs. 50 lakh in a financial year. The surcharge rates differ based on income levels, and for certain types of income, there are upper limits on the surcharge that can be levied. It is meant to make the tax system more progressive for high-income earners.
Surcharge rates for individuals under the old regime AY 2025-26 and new regime AY 2026-27
Net taxable income limit |
Surcharge rate on the amount of income tax |
Surcharge rate on the amount of income tax |
Less than Rs. 50 lakh |
Nil |
Nil |
More than Rs. 50 lakh ≤ Rs. 1 Crore |
10% |
10% |
More than Rs. 1 crore ≤ Rs. 2 crore |
15% |
15% |
More than Rs. 2 crore ≤ Rs. 5 crore |
25% |
25% |
More than Rs. 5 crore |
37% |
25% |
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urcharge on capital gains - Illustration
A surcharge of up to 15% is applicable on capital gains falling under sections 111A, 112, and 112A, and also on dividend income.
Let’s look at an example:
Mr. A has the following income in FY 2024–25:
Business Income: Rs. 3 crore
Capital Gains under section 112A: Rs. 50 lakh
Capital Gains under section 111A: Rs. 75 lakh
Capital Gains under section 112: Rs. 1.25 crore
His total income is Rs. 5.5 crore.
If this entire income was regular income, the surcharge rate would have been 37%.
But since a large portion is capital gains under sections with capped surcharge, the maximum surcharge is limited to 15% for those specific incomes.
Only the Rs. 3 crore of business income will be subject to a higher surcharge, which is 25%.
Surcharge rates for company
Net taxable income limit |
Surcharge rate on the amount of income tax under normal provisions |
Surcharge rate on the amount of income tax us 115BAA or 115BAB |
Less than Rs.1 crore |
- |
10% |
More than Rs. 1 crore ≤ Rs 10 Crore |
7% |
|
More than Rs. 10 crore |
12% |
Companies are required to pay a surcharge of 10% on income tax calculated under sections 115BAA or 115BAB. There is no minimum income threshold for this rate to apply. Consequently, such companies are not eligible for marginal relief even if their income only slightly exceeds Rs. 1 crore.
Surcharge rates for a foreign company
For foreign companies, surcharge on income tax depends on the total taxable income:
Net taxable income limit |
Surcharge rate on the amount of income tax |
More than Rs. 1 crore ≤ Rs. 10 crore |
2% |
More than Rs. 10 crore |
5% |
This surcharge is calculated on the income tax payable, not directly on the income. There are no exemptions or separate rules for these companies when it comes to surcharge, and these rates apply uniformly to all foreign companies operating in India. Additionally, marginal relief may be allowed in specific cases to ensure the surcharge doesn’t lead to an unfair jump in tax liability when income marginally exceeds the threshold.
Surcharge rates for a firm/ LLP/ ahority
Firms, LLPs, and local authorities become liable for a surcharge when their total income exceeds Rs. 1 crore in a financial year. In such cases, a 12% surcharge is applied on the amount of income tax calculated.
This surcharge is in addition to the tax already due under the applicable slab or rate. It is important to note that surcharge is levied only if the total income crosses the Rs. 1 crore limit—there is no surcharge for income below this threshold.
In case the income is only marginally above Rs. 1 crore, marginal relief may be granted to ensure that the extra tax liability from the surcharge doesn’t outweigh the extra income earned. This ensures fairness in tax calculation for firms with income slightly above the surcharge trigger.
Types of surcharges on income tax
- Individual/HUF surcharge: Levied on individuals and Hindu Undivided Families (HUFs) based on their income slabs.
- Corporate surcharge: Applicable to domestic and foreign companies based on their income levels.
- Firm/LLP surcharge: Charged on firms and Limited Liability Partnerships (LLPs) if their income exceeds the specified threshold.
Surcharge rates on income tax for different taxpayers
Surcharge rates on income tax in India vary based on income levels and tax regimes under the Income Tax Act of 1961. The highest surcharge rate of 37% was reduced to 25% from April 01, 2023, under the new tax regime.
