2019-11-04 20:08:34TaxesEnglishSurcharge on income tax is an added tax payable over & above the income tax. It is charged on the amount of income tax & not the total...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2019/11/Surcharge-on-Income-Tax-Meaning-and-Surcharge-Rates-1.jpghttps://quickbooks.intuit.com/in/resources/taxes/surcharge-on-income-tax/Surcharge On Income Tax: Meaning and Surcharge Rates

Surcharge On Income Tax: Meaning and Surcharge Rates

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Taxes are the sources of revenue for the government of any country. It is a type of payment made by any person to the government and is charged on various activities, income and products.

Constitution of India empowers both the central and the state governments to charge and collect taxes. Basically, there are two types of taxes being levied and collected by both the central and the state governments. These include:

1. Direct Taxes

These are the type of taxes levied directly on the income of the person. Since direct taxes are charged on the income of the taxpayer directly, it is the taxpayer who pays the tax to the government.

In other words, such a tax cannot be passed on to any other person.

2. Indirect Taxes

These are the type of taxes charged on the price of goods and services and not directly on the income of a person. Thus, it is a tax that is levied and collected by one entity from the end consumer and paid to the government.

In other words, such a tax can be shifted from one taxpayer to another. For example custom duty, GST, excise duty etc.

The person in the above definition of direct and indirect income includes:

  • An individual
  • Hindu Undivided Family (HUF)
  • Body of Individuals (BOI)
  • Association of Persons (AOP)
  • Company or Firm

This article talks about surcharge on income tax.  Thus, in order to calculate income tax, total income of a person is determined.

Then, a specified rate of tax is charged on this total income to calculate the income tax amount payable. And it is this income tax amount on which a specified rate of Surcharge is levied.

So, given this backdrop, let us understand in detail the concept of surcharge and its applicability.

What is Surcharge?

Surcharge is an added tax that is payable over and above the income tax. It is charged on the amount of income tax and not the total income of a person.Therefore, surcharge is nothing but a tax on tax.

As per section Article 271 of the Constitution of India, the Centre may at any time increase the taxes and duties by a surcharge for its own purposes. Thus, the proceeds collected from any such surcharge would form part of the Consolidated Fund of India.

In other words, the amount so collected through the Surcharge goes to the Centre and like other taxes is not shared with the states.

Furthermore, Surcharge is a way through which the government of India is able to make sure that wealthy individuals are contributing more towards the tax revenue of the government as against the lower income groups.

If you see closely, surcharge becomes applicable to an individual only if his annual total income exceeds Rs 50 Lakhs.

Similarly, Surcharge becomes applicable only to companies which have an annual total income exceeding Rs 50 Lakhs.

Surcharge Rates

The rates of surcharge applicable for the assessment year 2019 -2020 are as follows:

1. Individuals/HUF/AOP/BOI/Artificial Juridical Person

a. Where Total Income is More Than Rs 50 Lakh But Does Not Exceed Rs 1 Crore

Surcharge

Where total income is more than Rs 50 Lakhs but does not exceed Rs 1 Crore, Surcharge applicable on the income tax amount so calculated is at the rate of 10%.

Marginal Relief

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 50 Lakhs and the income tax payable on total income of Rs 50 lakhs should not exceed the actual increase in the income exceeding Rs 50 Lakhs.

Example

Ryan has a total income of Rs 60 Lakhs. The tax liability of Ryan for the assessment year 2019 – 2020 is as follows:

I. Tax payable by Ryan including surcharge on total income of Rs 60 Lakhs

Rs 2,50,000 – Rs 5,00,000 @ 5% = Rs 12,500
Rs 5,00,000 – Rs 10,00,000 @ 20% = Rs 1,00,000
Rs 10,00,000 – Rs 50,50,000 @ 30% = Rs 12,15,000

Total = Rs 13,27,500

Add: Surcharge @ 10% = Rs 1,32,750

Total Tax + Surcharge = Rs 14,60,250

II. Tax Payable on Total Income Of Rs 50 Lakhs

(Rs 12,500 + Rs 1,00,000 + Rs 12,00,000) = Rs 13,12,500

III. Excess Tax Payable (I – II) = Rs 14,60,250 – Rs 13,12,500 = Rs 1,47,750

IV. Marginal Relief (Rs 1,47,750 – Rs 50,000, being the amount of income in excess of Rs 50 Lakhs = Rs 97,750

V. Tax Payable (I – IV) = Rs 14,60,250 – Rs 97,750 = Rs 13,62,500

b. Where Total Income is More Than Rs 1 Crore

Surcharge

Where total income is more than Rs 50 Lakhs but does not exceed Rs 1 Crore, Surcharge applicable on the income tax amount so calculated is at the rate of 15%.

Marginal Relief

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 1 Crore and the income tax payable on total income of Rs 1 Crore should not exceed the actual increase in the income exceeding Rs1 Crore.

Example

Ryan has a total income of Rs 60 Lakhs. The tax liability of Ryan for the assessment year 2019 – 2020 is as follows:

I. Tax payable by Ryan including surcharge on total income of Rs 1,00,50,000

Rs 2,50,000 – Rs 5,00,000 @ 5% = Rs 12,500
Rs 5,00,000 – Rs 10,00,000 @ 20% = Rs 1,00,000
Rs 10,00,000 – Rs 90,50,000 @ 30% = Rs 27,15,000

Total = Rs 28,27,500

Add: Surcharge @ 15% = Rs 4,24,125

Total Tax + Surcharge = Rs 32,51,625

II. Tax Payable on Total Income Of Rs 1 Crore

(Rs 12,500 + Rs 1,00,000 + Rs 27,00,000) = Rs 28,12,500 plus 10% surcharge = Rs 30,93,750

III. Excess Tax Payable (I – II) = Rs 32,51,625 – Rs 130,93,750 = Rs 1,57,875

IV. Marginal Relief (Rs 1,57,875 – Rs 50,000, being the amount of income in excess of Rs 50 Lakhs = Rs 1,07,875

V. Tax Payable (I – IV) = Rs 32,51,625 – Rs 1,07,875 = Rs 31,43,750

2. Firm/LLP/LOcal Authority/Cooperative Society

Surcharge

Where total income is more than Rs 1 Crore, Surcharge applicable on the income tax amount so calculated is at the rate of 12%.

Marginal Relief

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 1 Crore and the income tax payable on total income of Rs 1 Crore should not exceed the actual increase in the income exceeding Rs 1 Crore.

3. Domestic Company

a. Where Total Income in case of Domestic Company is More Than Rs 1 Crore But Less Than 10 Crores

Surcharge

Where total income is more than Rs 1 Crore but does not exceed Rs 10 Crores, Surcharge applicable on the income tax amount so calculated is at the rate of 7%.

Marginal Relief

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 1 Crore and the income tax payable on total income of Rs 1 Crore should not exceed the actual increase in the income exceeding Rs1 Crore.

b. Where Total Income in case of Domestic Company is More Than Rs 10 Crores

Surcharge

Where total income is more than Rs 10 Crores, Surcharge applicable on the income tax amount so calculated is at the rate of 12%.

Marginal Relief

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 10 Crores and the income tax payable on total income of Rs 10 Crores should not exceed the actual increase in the income exceeding Rs10 Crores.

4. Foreign Company

a. Where Total Income in case of Foreign Company is More Than Rs 1 Crore But Less Than 10 Crores

Surcharge

Where total income is more than Rs 1 Crore but does not exceed Rs 10 Crores, Surcharge applicable on the income tax amount so calculated is at the rate of 2%.

Marginal Relief

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 1 Crore and the income tax payable on total income of Rs 1 Crore should not exceed the actual increase in the income exceeding Rs1 Crore.

b. Where Total Income in case of Foreign Company is More Than Rs 10 Crores

Marginal Relief

Where total income is more than Rs 10 Crores, Surcharge applicable on the income tax amount so calculated is at the rate of 5%.

Surcharge

To claim marginal relief in the above case, the difference between the total amount of income tax payable, including surcharge on income exceeding Rs 10 Crores and the income tax payable on total income of Rs 10 Crores should not exceed the actual increase in the income exceeding Rs10 Crores.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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