In India, individuals earning more than INR 2.50 lakh per annum are required to pay income tax. The income tax is charged based on different tax slabs mandated by per Government of India. For high taxpayers, the Government has added tax deductions. It is known as a surcharge. The key focus of the Indian Government is not to consider the surcharge as a penalty. Therefore, every surcharge comes with an additional benefit known as marginal relief. This article mainly discusses surcharge. However, it also discusses marginal relief since every surcharge is subject to marginal relief.Read more
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The surcharge is an additional tax fee. It is payable to individuals or corporations who fall under the upper tax bracket of 30%. The additional fee, i.e., the surcharge, is not quoted in the initial price of a good or service. It is added to the cost of goods and services in addition to the quoted price. It is an additional liability for taxpayers of India who earn a higher income. The surcharge has a different tax slab. Individuals and corporations who earn more than INR 50 lakh or above are required to pay the surcharge as an additional fee. As per different income slabs, individuals and corporations are required to pay different percentages of the surcharge as per the Income Tax Act, India.
Understanding different rates of surcharge is a cumbersome process. Many companies fail to identify the bracket where they fit for paying a certain surcharge. Therefore, all the rates of the surcharge as applicable are tabulated below.
|Type of Taxpayer||Net Income Threshold||Rate of Surcharge on Income Tax|
|Individual/ Hindu United Family/Association of Persons/ Body of Individuals||INR 50 lakh to INR 1 crore||10%|
|Individual/ Hindu United Family/Association of Persons/ Body of Individuals||INR One Crore to INR Two Crore||15%|
|Individual/ Hindu United Family/Association of Persons/ Body of Individuals||INR Two Crore to INR Five Crore||25%|
|Individual/ Hindu United Family/Association of Persons/ Body of Individuals||Above INR Five Crore||37%|
|Firm/LLP/Local Authorities/ Cooperative Society||Above INR 1 crore||12%|
|Domestic Companies||INR 1 crore to INR 10 crore||7%|
|Domestic Companies||Above INR 10 crore||12%|
The surcharge calculation for individuals (resident or non-resident) and Hindu United families are put forth below for three critical scenarios.
Taxable income is INR 49 lakh: In this case, the taxable income is lower than INR 50 lakh. Therefore, no surcharge will be levied on this income. Thus, the taxpayer will pay the tax as per the tax-paying slab applicable.
Taxable income is INR 53 lakh: In this case, the taxable income is more than INR 50 lakh. Therefore, the surcharge is applicable. Since the taxable income falls in the tax bracket of INR 50 lakh to INR 1 crore, a 10% surcharge will be applicable on the taxable amount. Thus, the individuals have to pay a tax of INR 15,90,000 as per the norms to pay 30% tax for income above INR 10 lakh. A 10% surcharge on this amount will result in INR 1,59,000. Then the total tax payable is INR 17,49,000.
Taxable Income is INR 110 lakh: When the income is INR 110 lakh, the 30% tax charge will result in INR 33,00,000. The individuals and HUFs are required to pay a 15% surcharge. Therefore, the total tax amount will be INR 37,95,000.
The partnership firms, including LLPs, will be taxed per the new tax regime. It will charge 30% tax on the income generated. However, a surcharge of 12% will be issued if the income exceeds more than INR 1 crore. In this case, the surcharge is subject to marginal relief.
The local authority will be taxed as per the 30% tax slab. In this case, if the amount of income exceeds INR 1 crore, a surcharge of 12% will be levied. The surcharge will be subject to marginal relief.
If the company's income in 2022-2023 has not exceeded INR 400 crore, as per the Income TaxAct, the company is levied to pay 25% tax. In all other cases, the company has to pay 30% tax. However, if the total income lies in the bracket of INR 1 to 10 crore, the company must provide a surcharge of 7%. If the company's total income is more than INR 10 crore, then the company is required to provide a surcharge of 12%. However, the surcharge will be subject to marginal relief.
The payment of a surchargeas per the Income Tax Actfor foreign companies has been shown below for three case scenarios.
Taxable Income is INR 95 lakh: The income of the foreign company is lower than INR 1 crore. Therefore, it is required to pay a tax of 40% on INR 95 lakh. Thus, the tax amounts to INR 38,00,000. Since the income is lower than INR 1 crore, the company does not require to provide any surcharge.
Taxable Income is INR 1.10 crore: The income of the foreign company exceeds INR 1 crore. It makes the company eligible for a surcharge. For its income bracket, the company will provide tax of the amount of INR 44,00,000 at a 40% tax rate. On this amount, a surcharge of 2% will be levied. Therefore, the surcharge amount will be INR 88,000. The total amount of tax to be paid is INR 4488000.
Taxable Income is INR 15 crore: The foreign company's income is more than INR 10 crore. The company is still required to pay 40% tax. It results in a tax amount of INR 6 crore. The company must pay an additional 5% tax on INR 6 crore as a surcharge. Therefore, the surcharge amountsto INR 30 lakh. The total amount of tax that the foreign company must pay is INR 6.3 crore.
The cooperative society has three tax brackets. For income up to INR 10,000, they must provide an income tax of 10%. For income from INR 10,000 to INR 20,000, they must provide an income tax of 20%. For income above INR 20,000, they must provide 30% tax. When the total income exceeds INR 1 crore, they must provide an additional surcharge of 12% as tax. However, the surcharge is subject to marginal relief.
As individuals and companies fall into different tax slabs, changes from one slab to another make a huge difference. The Income Tax Department of India considered making the change in slabs more smooth. That is where marginal relief helps. The amount is the tax payable difference with surcharge, on the income above the set tax limit and the income amount that exceeds the tax limit.
For instance, if person A earns INR 51 lakh in a year, that person will not require to pay a 10% surcharge.
ln another case, if the person earns INR 50 lakh in a year, that person will not require to pay a 10% surcharge. So, the person will not get any marginal relief.
In the first case of earning INR 51 lakh, the person must pay 30% tax and 10% surcharge. It will be a total of INR 16,83,000.
In the other case, when the person is earning INR 50 lakh, the person must pay 30% tax. It will be a total of INR 15,00,000.
Therefore, for earning INR 1 lakh extra, he must pay a considerably high amount as tax. This acts as a penalty for earning more than INR 50 lakh. To mitigate this penalty, marginal relief helps.
The person earning INR 51 lakh will get marginal relief as the difference between excess tax payment (16,83,000-15,00,000), I.e., INR 1,83,000, and the income amount that exceeds INR 50 lakh, i.e., INR 1 lakh. Thus, person A will avail of a marginal relief of INR 83,000.
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