Surcharge on Income Tax on Income Above Rs One Crore

Surcharge on income tax is an extra tax on high income. It is charged on the individuals and businesses. Earlier it was applicable only on the businesses but after the budget of 2013 it is applicable on the all taxpayers

The surcharge is levied on the income  above  Rs 1 crore. The rate of surcharge remains same above Rs one crore.

The rate of surcharge is different for different class of taxpayers. It is highest for the individuals.

The ‘marginal relief’ concession is given in case surcharge is levied.

The education cess is also levied over the surcharge. The education cess is calculated after adding surcharge on the income tax.

The rates of surcharge is as following for different category.

Income Tax Surcharge on individual and HUF

The income tax surcharge is highest for individuals and HUF. It is 15% of the income tax. Till financial year 2014-15, It was 10%. But in the FY 2015-16, government abolished wealth tax and increased the income tax surcharge by 2%. In the latest budget 2016, the surcharge was further increased to 15%.

Surcharge on Income Tax for LLP, Partnership Firm, Cooperative Society and Local Authority

The income tax surcharge for LLP and Partnership firm is similar to the individuals. It is 15% of the income tax.

Income tax Surcharge On Domestic Company

The surcharge is lower for the domestic company. It is 5% less than the individuals and partnership firms. The surcharge on domestic company is 7%.

Tax Surcharge on Foreign company

The surcharge rate is lowest for the foreign company. It is only 2% for the income below 10 crore. the surcharge becomes 5% for the income above Rs 10 crore.

The surcharge rate for foreign company may seem unreasonable, however you should note that the income tax rate for the foreign company is 40% instead of maximum 30% for the Indians.

Thus the total liability of foreign companies is anyway higher than the domestic company.

Income Tax Surcharge Calculation

The surcharge is levied on the total income tax of the taxpayer. It is not levied on the income of the taxpayer. Therefore, to calculate the surcharge, the income tax should be calculated first. Once you get the income tax, calculate the surcharge as well.

Income Tax Slab of 2016- 17

Income Tax Slab Rate in India for FY 2015-16

Add the surcharge into the income tax. The amount which you get after the surcharge addition is again subject to education cess. Like surcharge, education cess is also levied upon the income tax (with surcharge).

Example Of Surcharge

To understand the calculation of surcharge let us take the example of two taxpayers Mohan and Toyaj. The income of Mohan is below one crore therefore the surcharge is not applicable on his tax. On the other hand Toyaj earns more than Rs one crore. The surcharge is applicable on the income tax of Toyaj. The calculation of total tax payable is given below.

You can see that because of the surcharge the total payable tax of Toyaj has increased significantly. The Toyaj is earning 25 lacs more than the Mohan but his tax liability is more than 11.15 lacs. Because of the surcharge the increase in the tax liability is more than the 30% of the increased income.

Because of the surcharge, the tax liability can be increased more than the income. The total tax liability on the income of one crore would be 28.30 lacs. Whereas the tax liability of Rs 1.01 Crore would be 31.46 lacs. You can see that the income rose only one crore but tax liability has increased by 3.16 lacs. It seems unjust? To make it fair there is provision of Marginal relief. The marginal relief ensure that tax liability should not increase more than the income.

The surcharge is levied on the rich, thus they have right to crib. But, if they also use the tax saving exemptions and section 80C deduction wisely, the saving would be enough to balance the extra surcharge.