Income Tax Surcharge Rate and Marginal Relief
A surcharge on income tax is an additional tax levied on high-income taxpayers over and above their regular income tax liability. This surcharge ensures progressive taxation, where individuals and businesses earning higher incomes contribute more to the government. However, to prevent excessive tax burdens due to small income increases, the concept of marginal relief applies. Let’s explore the latest surcharge rates and marginal relief provisions for FY 2025-26.
Surcharge on Income Tax
Surcharge Rates for Individuals, HUFs, AOPs & BOIs
| Net Taxable Income | Surcharge Rate (Old Regime) | Surcharge Rate (New Regime) |
|---|---|---|
| Up to ₹50 lakh | Nil | Nil |
| ₹50 lakh – ₹1 crore | 10% | 10% |
| ₹1 crore – ₹2 crore | 15% | 15% |
| ₹2 crore – ₹5 crore | 25% | 25% |
| Above ₹5 crore | 37% | 25% (Reduced in Budget 2023) |
📌 Key Update: The highest surcharge rate of 37% (applicable for incomes above ₹5 crore) has been reduced to 25% under the new tax regime from April 1, 2023.
Surcharge on Long-Term Capital Gains (LTCG)
- The surcharge on LTCG from listed securities, equity mutual funds, and units is capped at 15% to prevent excessive taxation on investment gains.
Surcharge for Companies
Domestic Companies
| Net Taxable Income | Surcharge Rate (Normal Provisions) | Surcharge Rate (Under Sec. 115BAA or 115BAB) |
| Up to ₹1 crore | Nil | 10% |
| ₹1 crore – ₹10 crore | 7% | 10% |
| Above ₹10 crore | 12% | 10% |
Foreign Companies
| Net Taxable Income | Surcharge Rate |
| ₹1 crore – ₹10 crore | 2% |
| Above ₹10 crore | 5% |
Firms, LLPs & Local Authorities
- 12% surcharge applies when total income exceeds ₹1 crore.
Marginal Relief: Reducing Excessive Tax Burden
Marginal relief is a provision that ensures a taxpayer does not end up paying more tax due to a small increase in income that pushes them into a higher surcharge bracket.
Case 1: Marginal Relief for Individuals
📌 Example: If an individual earns ₹51 lakh, the 10% surcharge applies. However, if their total tax increases by more than the additional ₹1 lakh earned, marginal relief reduces the excess tax burden.
- Tax on ₹50 lakh = ₹13,12,500
- Tax on ₹51 lakh (with 10% surcharge) = ₹14,76,750
- Excess Tax = ₹1,64,250, but additional income = ₹1,00,000
- Marginal Relief = ₹64,250
- Final Tax Payable: ₹14,12,500 (excluding cess)
Case 2: Marginal Relief for Income Above ₹1 Crore
If an individual earns ₹1.01 crore, a 15% surcharge applies. However, marginal relief reduces excess tax burden due to the small income increase.
- Tax on ₹1 crore = ₹30,93,750
- Tax on ₹1.01 crore (with 15% surcharge) = ₹32,68,875
- Excess Tax = ₹1,75,125, but additional income = ₹1,00,000
- Marginal Relief = ₹75,125
- Final Tax Payable: ₹31,93,750
Marginal Relief for Firms, LLPs & Companies
- A firm or LLP with an income of ₹1.01 crore will receive marginal relief if the excess tax burden due to the 12% surcharge exceeds additional income earned.
- Companies earning between ₹1 crore – ₹10 crore (surcharge 7% for domestic companies, 2% for foreign companies) are also eligible for marginal relief.
- Conclusion
Surcharge and marginal relief play a vital role in progressive taxation by ensuring high-income earners contribute more while avoiding excessive tax burdens due to small income jumps. Taxpayers should carefully plan their income and investments to optimize their tax liability.
For tax planning, surcharge calculation, and compliance assistance, consult Saptax Hub LLP, a leading CA Firm in Delhi specializing in income tax and business advisory services.
