Bhavin Shah
In recent years it has been observed that the tax outflow for the high-income earners is going up. This is mainly on account of two reasons - (1) reluctance of the Government to cut taxes across the board and
(2) increasing pressure on the Government to charge higher taxes on the rich to compensate a lower tax regime for the middle-income class.
The Government's weapon to charge higher taxes is 'surcharge'. As the name suggests, surcharge is an additional charge / tax payable by the assessees. Over the last few years, the Government has not only widened the scope of applicability of surcharge but has also increased the surcharge rates.
What are the existing surcharge rates?
1. Individual, HUF, AOP, BOI and Artificial Judicial Person
|
Total Income Threshold |
Surcharge |
|
≤ INR 50lacs |
NIL |
|
> INR 50lacs and ≤ INR 1crore |
10% |
|
> INR 1crore and ≤ INR 2crores |
15% |
|
> INR 2crores and ≤ INR 5crores |
25% |
|
> INR 5crores |
37% |
2. Co-operative society, Firm and Local Authority
|
Total Income Threshold |
Surcharge |
|
≤ INR 1crore |
NIL |
|
> INR 1crore |
12% |
3. Domestic Companies (not opted for section 115BAA or 115BAB)
|
Total Income Threshold |
Surcharge |
|
≤ INR 1crore |
NIL |
|
> INR 1crore and ≤ INR 10crores |
7% |
|
> INR 10crores |
12% |
4. Foreign Companies
|
Total Income Threshold |
Surcharge |
|
≤ INR 1crore |
NIL |
|
> INR 1crore and ≤ INR 10crores |
2% |
|
> INR 10crores |
5% |
What is Marginal Relief on surcharge?
Various categories of assessees are liable to pay the surcharge on the basis of the total income thresholds tabulated above.
Practically, there may be a situation where the total income of the assessee marginally exceeds a particular threshold and the assessee becomes liable to pay surcharge/surcharge at a higher rate. This results in an additional tax outflow vis-à-vis the additional income earned over and above the threshold.
To avoid such a situation, the income-tax law provides for a concept known as 'Marginal Relief on surcharge'. The basic idea is that the increase in tax liability (due to surcharge) should not exceed the increase in income. If that is the case, the assessee will get marginal relief for the difference amount.
Calculation of Marginal Relief on surcharge
Marginal Relief shall be calculated in the following steps -
Step 1: Calculate tax payable including surcharge on the actual total income
Step 2: Calculate the tax payable including surcharge (if any) on the threshold
Step 3: Calculate additional tax payable [tax on actual (-) tax on threshold]
Step 4: Calculate additional income earned [actual (-) threshold]
Step 5: Marginal Relief = Additional tax payable (-) Additional income earned
Illustration I
|
Steps |
Particulars |
Individual (aged 55) |
||
|
Actual Total Income (A) |
(A) |
51,00,000 |
||
|
Step 1 |
Tax as per slab rate Add: Surcharge @10% |
13,42,500 1,34,250 |
14,76,750 |
|
|
Threshold (B) |
(B) |
50,00,000 |
||
|
Step 2 |
Tax as per slab rate |
13,12,500 |
||
|
Step 3 |
Additional Tax |
Step (1 - 2) |
1,64,250 |
|
|
Step 4 |
Additional Income |
(A - B) |
1,00,000 |
|
|
Step 5 |
Marginal Relief |
Step (3 - 4) |
64,250 |
|
Illustration II
|
Steps |
Particulars |
Domestic Company |
||
|
Actual Total Income |
(A) |
10,01,00,000 |
||
|
Step 1 |
Tax @30% Add: Surcharge @12% |
3,00,30,000 36,03,600 |
3,36,33,600 |
|
|
Threshold |
(B) |
10,00,00,000 |
||
|
Step 2 |
Tax @30% Add: Surcharge @7% |
3,00,00,000 21,00,000 |
3,21,00,000 |
|
|
Step 3 |
Additional Tax |
Step (1 - 2) |
15,33,600 |
|
|
Step 4 |
Additional Income |
(A - B) |
1,00,000 |
|
|
Step 5 |
Marginal Relief |
Step (3 - 4) |
14,33,600 |
|
Illustration III
|
Steps |
Particulars |
Individual (aged 40) |
||
|
Actual Total Income |
(A) |
1,05,00,000 |
||
|
Step 1 |
Tax as per slab rate Add: Surcharge @15% |
29,62,500 4,44,375 |
34,06,875 |
|
|
Threshold |
(B) |
1,00,00,000 |
||
|
Step 2 |
Tax as per slab rate Add: Surcharge @10% |
28,12,500 2,81,250 |
30,93,750 |
|
|
Step 3 |
Additional Tax |
Step (1 - 2) |
3,13,125 |
|
|
Step 4 |
Additional Income |
(A - B) |
5,00,000 |
|
|
Step 5 |
Marginal Relief |
Step (3 - 4) |
NIL |
|
Note: Marginal relief on surcharge cannot be negative
Marginal Relief on surcharge - Formula
Marginal Relief = Tax on (A) - Tax on (B) - [A - B]
where,
(A) = Actual total income
(B) = Total income threshold
The author can be reached at bhs6992@gmail.com
Disclaimer: This article is meant purely for general educational purposes and is not intended to advise or a legal opinion on any particular matter. I accept no responsibility for any errors it may contain, whether caused by negligence or otherwise. Readers are advised to consult their own professional advisors.
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