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The surcharge meaning and concept of marginal relief on the surcharge is in tune with the progressive tax system structure that has been adopted in India where the rate of tax is higher for higher income groups. Similarly, the surcharge on the tax levied is also higher for higher income brackets. On levy of such surcharge at different rates for different slabs, there were instances of surcharge tax amount being more than the differential income amount, therefore, the concept of marginal relief was introduced to ensure that no such anomalies occurred in the system. Surcharge rates are different for individuals, firms and companies and also different between old and new tax regimes.
Surcharge Meaning
A surcharge is an additional tax levied on taxpayers whose income exceeds a certain threshold. It is applied on top of the basic income tax and is commonly used to increase the tax liability of higher-income individuals and entities. The applicability and rates of surcharge are different for different categories of assessees such as individuals, HUFs, companies, LLPs, Firms, AOPs etc.
Surcharge Calculation
The surcharge is calculated as a specified percentage of the tax amount. Let us take the example of an individual Mr. A who has a taxable income of Rs. 1.60 crores in FY 2024-25.
Since Mr. A is in the highest income tax slab of 30%, the amount of tax will be Rs. 48 lacs.
Now, since the total taxable income of Mr. A exceeds Rs. 1 crore, a surcharge of 15% will be levied on the tax amount of Rs. 48 lacs, therefore, the surcharge will be Rs. 7.20 lacs.
Surcharge on Individual and HUF
The surcharge rates are different for individuals/HUFs filing their returns in the default tax regime and the old tax regime on account of the maximum rate of surcharge being capped 25% in the new tax regime i.e. the default tax regime. The surcharge rates are as per the table below –
| Total Income | Surcharge as per the New Tax Regime i.e. Default Tax Regime | Surcharge as per the Old Tax Regime |
| Upto Rs. 50 lacs | Nil | Nil |
| More than Rs. 50 lacs upto Rs. 1 crore | 10% | 10% |
| More than Rs. 1 crore upto Rs. 2 crores | 15% | 15% |
| More than Rs. 2 crores upto Rs. 5 crores | 25% | 25% |
| More than Rs. 5 crores | 37% | 25% |
It is pertinent to note that the surcharge on dividend income and capital gains u/s 111A, 112 and 112A has been capped at 15%.
If an AOP has only companies as its members and the total income exceeds Rs. 1 crore, then the surcharge rate will be 15%.
Surcharge on Companies
The surcharge to be levied on companies are classified under the following three categories-
| Surcharge on Domestic companies – Normal Provisions | Where total income is more than Rs. 1 crore but upto Rs. 10 crores | 7% |
| Where total income is more than Rs. 10 crores | 12% | |
| Surcharge on Domestic companies – Concessional Tax Regimes – 115BAA or 115BAB | No threshold limit | 10% |
| Surcharge on Foreign Companies | Where total income is more than Rs. 1 crore but upto Rs. 10 crores | 2% |
| Where total income is more than Rs. 10 crores | 5% |
Surcharge on Partnership firms/LLPs/Local Authorities
Where the total income of any partnership firm, LLP or local authority exceeds Rs. 1 crore, surcharge @ 12% on the tax amount will be levied.
What is Marginal Relief in Income Tax
Marginal relief is a tax provision aimed at easing the burden when a slight increase in income results in a much higher tax due to the surcharge factor. It ensures fairness by making sure that the additional tax you owe does not exceed the extra income that led to the surcharge threshold. In simple terms, if earning a little more ends up costing you more in tax than you gained, marginal relief corrects that imbalance.
Marginal Relief for Individuals
For an individual filing his return under the default tax regime i.e. the new tax regime, the implication of marginal relief will be as explained below –
| Total Income | Aggregate of Income Tax and Surcharge shall be restricted to |
| More than Rs. 50 lacs upto Rs. 1 crore | Tax on Rs. 50 lacs + (Total Income – Rs. 50 lacs) |
| More than Rs. 1 crore upto Rs. 2 crores | Tax on Rs. 1 crore + 10% Surcharge + (Total Income – Rs. 1 crore) |
| More than Rs. 2 crores | Tax on Rs. 2 crore + 15% Surcharge + (Total Income – Rs. 2 crores) |
Marginal Relief for Companies
| Nature of Assessee | Total Income | Aggregate of Income Tax and Surcharge shall be restricted to |
| Domestic or Foreign companies | More than Rs. 1 crore upto Rs. 10 crores | Tax on Rs. 1 crore + (Total Income – Rs. 1 crore) |
| Domestic companies | More than Rs. 10 crores | Tax on Rs. 10 crores + 7% Surcharge + (Total Income – Rs. 10 crores) |
| Foreign companies | More than Rs. 10 crores | Tax on Rs. 10 crores + 2% Surcharge + (Total Income – Rs. 10 crores) |
About the Author This article is written by FCA Eshita Krishna , an experienced Chartered Accountant with advanced ICAI certifications in DISA, Anti-Money Laundering, Real Estate Laws, and Forex & Treasury Management. With strong expertise in direct and indirect tax, audit, risk advisory, financial planning, and financial management, she delivers accurate, experience-backed financial insights to readers.