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Surcharge on Income Tax and Marginal Relief - Current Rates
If you or your business earns above a certain threshold, your tax liability doesn’t just include income tax—you also pay a surcharge on income tax. This additional tax applies to:
- Individuals earning more than ₹50 lakh per year.
- Companies with taxable income exceeding ₹1 crore per year.
To ensure fairness, marginal relief is available if the surcharge increases tax liability disproportionately. This ensures you don’t pay more tax than necessary. Understanding surcharge rates, applicability, and marginal relief can help you plan your taxes better and manage your finances effectively.
Surcharge on income tax
A surcharge is an extra tax imposed on high-income taxpayers over and above the standard income tax. It follows a progressive structure, meaning those with higher earnings contribute more. The surcharge is calculated as a percentage of the income tax payable, not on the income itself.
Who is liable to pay surcharge in India?
The following individuals and entities are required to pay surcharge on income tax in India:
- Individuals earning over ₹50 lakh in a financial year.
- Domestic companies with taxable income exceeding ₹1 crore in a financial year.
- Foreign companies with taxable income over ₹1 crore in a financial year.
- Partnership firms, LLPs, and local authorities with taxable income exceeding ₹1 crore in a financial year.
Latest surcharge rates for different taxpayers for AY 24-25
Different taxpayers are subject to varying surcharge rates. Below are the latest surcharge rates applicable to various categories of taxpayers, such as salaried individuals, companies, or partnership firms.
Surcharge rates for individual taxpayers (AY 2024-25)
For individual taxpayers, surcharge rates vary based on income levels and the chosen tax regime–old or new. While both regimes apply a surcharge on incomes above ₹50 lakh, the new tax regime offers a lower maximum surcharge rate of 25% instead of 37% under the old tax regime. Below is a breakdown of surcharge rates for individuals under both tax regimes for AY 2024-25.
| Net taxable income | Under the old tax regime | Under the new tax regime |
| Below ₹50 lakh | Nil | Nil |
| ₹50 lakh to ₹1 crore | 10% | 10% |
| ₹1 crore to ₹2 crore | 15% | 15% |
| ₹2 crore to ₹5crore | 25% | 25% |
| Above ₹5crore | 37% | 25% |
Surcharge rates for companies (Current rates)
Companies in India, both domestic and foreign, are subject to different surcharge rates. Let us first take a look at the rates applicable to domestic companies:
Surcharge rates for domestic companies
Domestic companies must pay a surcharge on their income tax if their taxable income exceeds ₹1 crore. The surcharge rates for Assessment Year 2024-25 are:
| Next taxable income limit | Normal surcharge rate | Under Sections 115BAA or 115BAB of the Income Tax Act* |
| Below ₹1 crore | Nil | 10% |
| ₹1 crore to ₹10 crore | 7% | |
| Above ₹10 crore | 12% |
*For companies opting for concessional tax regimes under Section 115BAA or 115BAB, a flat 10% surcharge applies, regardless of income level. These sections allow domestic companies to pay reduced tax rates if they forgo certain deductions and exemptions.
Surcharge rates for foreign companies
Foreign companies operating in India are subject to a surcharge on their income tax once their taxable income exceeds ₹1 crore in a financial year.
| Next taxable income limit | Applicable surcharge rate |
| ₹1 crore to ₹10 crore | 2% |
| Above ₹10 crore | 5% |
Unlike domestic companies, which have a wider range of surcharge rates, foreign companies are taxed at comparatively lower surcharge percentages. This helps maintain India’s attractiveness as an investment destination while ensuring that high-revenue-generating foreign businesses contribute to the nation’s tax revenue.
How is the surcharge calculated?
- Step 1: Determine the income tax payable
Calculate the income tax as per applicable tax slabs before adding any surcharge.
- Step 2: Apply the surcharge rate
Refer to the surcharge slab applicable to your income level and calculate the surcharge as a percentage of the income tax payable.
- Step 3: Calculate surcharge
Multiply the income tax payable by the surcharge rate.
- Step 4: Add Health & Education Cess (4%)
Compute the final tax liability after adding the 4% cess on the total tax (including surcharge).
Surcharge rate example calculation
Case 1: Individual with ₹60 lakh taxable income
- Income tax payable (as per slab): ₹12 lakh
- Surcharge @10% (since income is above ₹50 lakh but below ₹1 crore): ₹1.2 lakh
- Tax after surcharge: ₹13.2 lakh
- Health & education cess @4%: ₹52,800
- Final tax payable: ₹13,52,800
Case 2: Domestic company with ₹5 crore taxable income
- Income tax payable (30% of ₹5 crore): ₹1.5 crore
- Surcharge @12% (since income exceeds ₹10 crore): ₹18 lakh
- Tax after surcharge: ₹1.68 crore
- Health & education cess @4%: ₹6.72 lakh
- Final tax payable: ₹1,74,72,000
Use Zoho’s free income tax calculator to calculate accurate taxes on your income.
Marginal relief in income tax
Marginal relief is a provision that ensures taxpayers just crossing the surcharge threshold do not pay excessively high taxes. It prevents an unfairly high tax burden due to a minor increase in income. This relief is available to individuals, partnership firms, LLPs, local authorities, and companies in India.
Example of marginal relief for individuals
Consider an individual taxpayer earning ₹51 lakh in a financial year under the old tax regime. Here’s how the tax would be calculated:
- Income tax payable (as per slabs at 30%) = ₹13,12,500
- Surcharge amount* (10% on ₹13,12,500) = ₹1,31,250
- Total tax (before relief) = ₹14,43,750
*Surcharge of 10% is applicable as the taxable income exceeds the threshold limit of ₹50 lakh.
Now, the excess income over ₹50 lakh is just ₹1 lakh, but the surcharge increases the tax by ₹1,31,250—which is higher than the excess income itself.
To prevent this unfair jump, marginal relief ensures that the extra tax due to the surcharge doesn’t exceed the extra income earned. The final tax liability is adjusted so that the additional tax is limited to ₹1 lakh.
Marginal relief calculation and formula
Marginal relief is calculated by comparing the additional tax burden due to the surcharge with the excess income over the threshold. The formula is:
Marginal relief = Surcharge amount - (Taxable income - Threshold limit)
For our example:
Marginal relief = ₹1,31,250 - (₹51,00,000 - ₹50,00,000)
Marginal relief = ₹31,250
After applying this relief, the final tax liability becomes ₹14,12,500 instead of ₹14,43,750.
Marginal relief for companies
Companies also benefit from marginal relief when their income slightly exceeds surcharge thresholds.
For instance, suppose a domestic company Zylker has a taxable income of ₹5 crore. The standard surcharge rate for companies with income exceeding ₹1 crore is 7%.
- Without relief, the surcharge would be 7% of ₹5 crore = ₹35 lakh
- However, since the company’s taxable income exceeds the threshold by ₹4 crore (₹5 crore - ₹1 crore), the surcharge should ideally apply only to this excess.
- With marginal relief, the surcharge is recalculated, bringing it down to ₹28 lakh instead of ₹35 lakh.
This adjustment ensures that the additional tax doesn’t disproportionately impact companies that barely cross the threshold.
Key takeaways
A surcharge on income tax applies to individuals and businesses with high taxable income in a financial year. Higher income attracts higher surcharge rates, but marginal relief prevents an excessive tax burden for individuals and companies with a slight increase in their income levels.
Employers in India can accurately calculate their employees' income tax and surcharge rates using Zoho Payroll, a cloud-based payroll software that automates salary calculations, tax deductions, and more. With built-in compliance with India’s labor laws, Zoho Payroll empowers businesses to deduct accurate employee taxes every time.
FAQs on surcharge rates
1. What is the latest surcharge rate in the new tax regime?
From 1st April 2023 onwards, the highest surcharge rate in the new tax regime has been reduced from 37% to 25% for individuals earning above ₹5 crore. This reduction in the top surcharge rate lowers the overall effective tax rate for high-income individuals opting for the new tax regime.
2. Is the surcharge applicable on capital gains?
Yes, a 15% surcharge applies to long-term capital gains (LTCG) on listed equity shares, units, and dividends. However, for short-term capital gains (STCG) and other LTCG, the surcharge follows the standard rate applicable to the taxpayer's income slab.
3. When is the surcharge applicable?
A surcharge is applicable when an individual or entity's taxable income exceeds a specific threshold set by the Income Tax Act. For individuals, surcharge applies when taxable income crosses ₹50 lakh, with rates increasing progressively for higher income brackets. Companies, including domestic and foreign entities, are subject to a surcharge if their taxable income exceeds ₹1 crore. Similarly, partnership firms, LLPs, and local authorities face a surcharge at a flat rate when their income surpasses ₹1 crore.
4. Why is the surcharge charged?
The surcharge is designed to ensure that high-income groups contribute more to tax revenue compared to low-income groups. This approach helps reduce income inequalities and alleviates the tax burden on lower-income individuals.