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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.
Note: The surcharge rates discussed here apply to AY 2025-26 (FY 2024-25) and Tax Year 2026-27 (FY 2025-26). The Income-tax Act, 2025 takes effect from 1 April 2026, but the provisions of the 1961 Act continue to apply for Tax Year 2026-27, since that tax year covers income earned up to 31 March 2026.
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% |
Update from Budget 2024: Effective AY 2025-26, the basic income tax rate for foreign companies has been reduced from 40% to 35% to attract more foreign capital into India. The surcharge rates above are in addition to this revised base rate.
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.
Cap on surcharge for capital gains and dividend income
Under both regimes, the enhanced surcharge of 25% and 37% does not apply to certain types of income. The maximum surcharge is capped at 15% on:
Short-term capital gains under Section 111A (listed equity, equity-oriented mutual funds)
Long-term capital gains under Section 112 (capital gains other than equity such as gold, unlisted shares, real estate, which are now taxed at a unified rate of 12.5% without indexation benefits))
Long-term capital gains under Section 112A (listed equity, equity-oriented mutual funds exceeding ₹1.25 lakh)
Dividend income
Income of Foreign Institutional Investors (FIIs) under Section 115AD(1)(b)
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 (Old tax regime, AY 2026-27)
Income tax payable (as per slab): ₹16,12,500
Surcharge @ 10% (since income is above ₹50 lakh but below ₹1 crore): ₹1,61,250
Tax after surcharge: ₹17,73,750
Health & education cess @ 4%: ₹70,950
Final tax payable: ₹18,44,700
Case 2: Domestic company with ₹5 crore taxable income
Income tax payable (30% of ₹5 crore): ₹1,50,00,000
Surcharge @ 7% (since income is between ₹1 crore and ₹10 crore): ₹10,50,000
Tax after surcharge: ₹1,60,50,000
Health & education cess @ 4%: ₹6,42,000
Final tax payable: ₹1,66,92,000
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) = ₹13,42,500
Surcharge amount* (10% on ₹13,42,500) = ₹1,34,250
Total tax (before relief) = ₹14,76,750
*Surcharge of 10% is applicable as the taxable income exceeds the threshold of ₹50 lakh.
Now, the excess income over ₹50 lakh is just ₹1 lakh:
Tax at ₹50 lakh = ₹13,12,500
Additional tax burden = ₹1,64,250 (₹14,76,750 - ₹13,12,500)
Excess income = ₹1,00,000
Marginal relief = ₹1,64,250 - ₹1,00,000 = ₹64,250
Tax after relief = ₹14,12,500
To prevent this unfair jump, marginal relief ensures that the extra tax due to crossing the threshold doesn't exceed the extra income earned.
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:
Tax + Surcharge at ₹51 lakh = ₹14,76,750
Tax at ₹50 lakh = ₹13,12,500
Excess income = ₹1,00,000
Marginal relief = ₹14,76,750 − (₹13,12,500 + ₹1,00,000) = ₹64,250
After applying this relief, the final tax liability becomes ₹14,12,500 (before cess) instead of ₹14,76,750. Adding 4% cess of ₹56,500, the total tax payable is ₹14,69,000.
Marginal relief for companies
Suppose a domestic company, Zylker, has a taxable income of ₹1.01 crore. The standard surcharge rate of 7% applies to companies with income exceeding ₹1 crore.
Tax on ₹1.01 crore (at 30%) = ₹30,30,000
Surcharge @ 7% = ₹2,12,100
Total tax + surcharge = ₹32,42,100
If the company earned ₹1 crore, tax = ₹30,00,000.
Extra tax = ₹2,42,100 vs. Extra income = ₹1,00,000.
If the company had earned exactly ₹1 crore, no surcharge would apply, and the tax would be ₹30,00,000. So for an extra ₹1 lakh of income, the tax burden has jumped by ₹2,42,100, clearly disproportionate.
Applying marginal relief:
Marginal relief = ₹32,42,100 − (₹30,00,000 + ₹1,00,000) = ₹1,42,100
Tax after relief = ₹32,42,100 − ₹1,42,100 = ₹31,00,000
Cess @ 4% = ₹1,24,000
Final tax = ₹32,24,000
This adjustment ensures that companies barely crossing the threshold don't face an outsized tax hit. Similar marginal relief applies at the ₹10 crore threshold (where surcharge moves from 7% to 12% for domestic companies, and 2% to 5% for foreign companies), and at the ₹2 crore and ₹5 crore thresholds for individuals.
Key updates for FY 2025-26 (AY 2026-27)
While surcharge rates remain unchanged, Budget 2025 introduced other changes that affect overall tax liability for individuals:
Revised slabs under the new tax regime: Nil up to ₹4 lakh, 5% (₹4-8L), 10% (₹8-12L), 15% (₹12-16L), 20% (₹16-20L), 25% (₹20-24L), and 30% above ₹24 lakh. A new 25% slab was introduced.
Section 87A rebate enhanced: Up to ₹60,000 for resident individuals with income up to ₹12 lakh under the new regime (vs ₹25,000 up to ₹7 lakh in AY 2025-26). With the ₹75,000 standard deduction, salaried individuals earning up to ₹12.75 lakh effectively pay zero income tax. Marginal relief is also available for those whose income slightly exceeds the ₹12 lakh rebate threshold.
Transition to Income-tax Act, 2025: While Budget 2026 retained these rates, it marked the official transition to the Income-tax Act, 2025 (effective 1 April 2026). This Act replaces the dual 'Previous Year/Assessment Year' system with a unified 'Tax Year' for income earned from this date forward.
No changes for FY 2026-27:Budget 2026 retained all slab rates, surcharge rates, and rebate limits unchanged.
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 whose income only slightly exceeds the threshold.
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 labour laws, Zoho Payroll empowers businesses to deduct accurate employee taxes every time.
FAQs on surcharge rates
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 capped at 25% for individuals earning above ₹2 crore (the 37% rate does not apply under the new regime). This reduction in the top surcharge rate lowers the overall effective tax rate for high-income individuals opting for the new tax regime. This continues to apply for AY 2025-26 and Tax Year 2026-27.
Is the surcharge applicable on capital gains?
Yes, but the surcharge is capped at 15% for short-term capital gains under Section 111A, long-term capital gains under Sections 112 and 112A, and dividend income regardless of the taxpayer's overall income slab. For other capital gains and income types, the standard surcharge rate based on the taxpayer's total income applies.
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 of 12% when their income exceeds ₹1 crore.
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.
Have surcharge rates changed for FY 2025-26 or FY 2026-27?
No. Surcharge rates and threshold limits remain unchanged from the previous assessment years. Budget 2025 and Budget 2026 did not revise any surcharge slabs for individuals, companies, firms, LLPs, or local authorities. However, the basic tax rate for foreign companies was reduced from 40% to 35% in Budget 2024, effective AY 2025-26.