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Surcharge on Income Tax: Know Surcharge Fee and Calculations

IndianMoney.com Research Team | Posted On Friday, September 27,2019, 06:10 PM

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Surcharge on Income Tax: Know Surcharge Fee and Calculations

 

 

Do you belong to the higher income tax brackets and are paying 30% income tax? You may have come across an added deduction known as surcharge. What is surcharge and why the government levies it? Let’s find out:

What does Surcharge mean?

Surcharge is a type of tax levied by the government on the existing tax. Surcharge is levied on the taxable income and not on the net income. It is an additional tax that must be paid by individuals with higher income. This is a government strategy to ensure the rich contribute more towards the income taxes than the other taxpayers.

The surcharge is levied as a percentage on the income tax payable by the entity. The central government earns and retains added revenue by applying surcharge. The revenue earned by surcharge is not given to the states.

Surcharge was introduced in the 2013 budget when the UPA government levied a 10 percent surcharge on the super-rich. In the year 2015, the surcharge was increased to about 12% by the NDA government.  In the budget 2016, the rate further increased to 15%.

See Also: All You Must Know About Tax Planning

Types of Surcharge:

Surcharge is applicable either on high net worth individuals, HUF, association of persons, body of individuals and artificial judicial person, firms and on domestic companies and foreign companies.

Individual surcharge: the surcharge levied on this category of taxpayer is decided according to the net income. In case the income if an individual is above Rs. 50 and below Rs. 1 crore the surcharge levied will be 10%. But in case the individual earns an income above Rs. 1 crore the surcharge percentage will be 15%. The surcharge is levied as per the income limit and the maximum surcharge levied on this category of taxpayers is 37%. The individual is liable to receive a marginal relief of the difference amount between the excess tax payable on higher income. Surcharge is also applicable to HUF, association of persons, body of individuals and artificial judicial person at same rate as individual taxpayers.

Company surcharge: the government levies a surcharge of 12% for exceeding the threshold limit of 1crore. Marginal relief is provided to firms having a total income of more than a crore. Surcharge is also levied on domestic and foreign companies. When the income of a domestic company is below Rs. 10 crore then a surcharge of 7% is levied on the income tax payable. For domestic companies earning more than Rs. 10 crore a surcharge of 12% is levied on the income tax. Similarly, foreign companies earning more than Rs. 10 crore are liable to pay 5% surcharge on the income tax payable.

See Also: What are the steps involved in tax planning?

Health and Education Cess:

It is an additional tax implied as the basic tax liability of taxpayers. The education cess is levied by the government for meeting specific expenditures. Any Indian taxpayer who is liable to pay income tax must also pay health and education cess on the income tax payable. The percentage is fixed at 4% on the total income tax. For example, if an income of Rs. 1000 will attract an income tax of Rs. 300, the health and education cess would be 4% of Rs. 300. So the cess would be Rs. 12. Unlike surcharge, the education cess is not limited to any category and must be paid by all taxpayers in the country.

Current rates of Surcharge:

The surcharge rates are further hiked in the Finance Act 2019. The current rates are applicable for the financial year 2019-20. The rates of surcharge are different for different category of taxpayers. The current rates are as follows:

Tax payers

Income limit

Surcharge on income tax payable

Individual, HUF, association of persons, body of individuals and artificial judicial person

Income above Rs. 50 lakhs but below Rs. 1 crore

10%

Individual, HUF, association of persons, body of individuals and artificial judicial person

Income above Rs. 1 crore but below Rs. 2 crores

15%

Individual, HUF, association of persons, body of individuals and artificial judicial person

Income above Rs. 2  crores but below Rs. 5 crores

25%

Individual, HUF, association of persons, body of individuals and artificial judicial person

Income above Rs. 5 crores

37%

Firms, local authorities and co-operative societies

For income more than Rs. 1 crore

12%

Domestic company

Income above Rs. 1 crore but below Rs. 10 crores

7%

Domestic company

Income exceeding Rs. 10 crores

12%

Foreign company

Income above Rs. 1 crore but below Rs. 10 crores

2%

Foreign company

Income exceeding Rs. 10 crores

5%

Marginal relief on surcharge:

As per the income tax act 1961, a marginal relief is provided to taxpayers whose taxable income is beyond the threshold limit after which surcharge is payable, but the net income above the threshold is less than the surcharge.

Sometimes, the taxpayer is liable to pay surcharge even if the income exceeds the margin. To relieve the taxpayers in case of such anomalies, the concept of marginal relief has been introduced. It is a deduction granted to the taxpayer when the surcharge amount exceeds the difference between the taxable income and the margin.

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