Surcharge Income Tax

Surcharge Income Tax

A Surcharge Income Tax is an extra fee, as the name suggests. If the asset’s gross income in a financial year reaches the defined income cap, it is imposed on the current income tax. Bear in mind, however, that the surcharge is levied on the tax owed and not on earnings. The surcharge is paid based on the taxpayers’ categorization at separate income tax slab rates. Surcharge Income Tax prices usually vary from 2% to 37 per cent. The definition of the income tax surcharge was first put forward in the 2013 Finance Act.

As per the basic principle, presume that your overall income has surpassed your certain relative cap in a financial year. A surcharge of 10 per cent is to be levied, and a levy of around 5,000 is to be collected. In this case, the surcharge income tax would be 10% of the 5,000, i.e., 500.

Surcharge Income Tax for Individuals

Initially, the capital benefit surcharge on citizens was levied at a rate of 10 per cent. In the union budget 2015 and later to 15 per cent in the 2016 budget, the surcharge was raised to a maximum of 12 per cent. The prices have been boosted even higher in the 2019 Budget. Individuals are liable to a surcharge if their net profits in a financial year reach 50 lakh, according to the 2017 Budget. The rates of surcharge tax on wages differ from individuals to firms.

Health and Education Cess

Surcharge and cess are identical meanings. Cess is a fee that is paid on the payable tax. Unlike surcharges, cess extends to all taxpayers in the region, regardless of their status. It is simply a tax levied by the government and is obtained by the taxpayers and used for particular purposes. The cess fund must be used for the same reason for which it was founded. As a result, the health and education cess is used to offset the expenses of health and education for people living in poverty. The current cess average for health and education is 4%.

Surcharge Income Tax Current Rates

The capital benefit surcharge is imposed on various taxpayers at different amounts. The new Surcharge Income Tax rates are listed below.

Surcharge levied on individuals, HUFs, Association of Person, Body of Individuals and Artificial Judicial Person.

The previous rate of surcharge was set at 15%. The surcharge rate for annual wages between 2 and 5 crores was raised to 25% in the Union Budget of 2019. The surcharge limit was increased to 37 per cent for taxable profits above $5 million.

Surcharge Income Tax levied on domestic companies.

Surcharge Income Tax levied on foreign companies

Companies based outside the country are called overseas companies under the Indian Income Tax Act of 1961. The surcharge applied to international companies is less applicable to domestic companies, as shown in the table. The disparity is attributed to international firms paying higher tax rates than domestic companies.

How is Surcharge Income Tax Calculated?

The calculation of the surcharge begins from the Gross Total Income or GTI calculation. The GTI is made up of earnings from five different outlets. As per the instructions of the Income Tax Act of 1961, deductions are made from the GTI. The Net Tidal Income is the residual sum. The respective premiums are levied on individuals and firms based on the net total income surcharge. For a clearer explanation, see the examples below. 

Individual Surcharge Income Tax

Assume your gross net income is $1.10 million and your income tax obligation is $31.12 million. The surcharge will be assessed at the rate of 15 per cent as the net sales have reached the threshold of 1 Cr. Therefore, 15 per cent of your Rs. 31.12 Lakh payable tax, i.e., Rs. 4.67 Lakh will be added to your current payable tax, raising your tax liabilities to Rs. 35.79 Lakh.

Domestic company Surcharge Income Tax

Assume a domestic company’s net revenue is $1.10 million, and the income tax owed is $33,000. According to the table above, the company would be exposed to a 7% surcharge fee. The current tax burden would then be extended to 7 per cent of the payable income tax of ⁇ 33 Lakh, i.e. 2.31 Lakh. The company’s new tax obligation would therefore be around 35.31 Lakh.

Foreign company Surcharge Income Tax

Assume a multinational company’s net revenue is 1.10 million dollars, and its actual payable income is 44 thousand dollars. According to the prices, 2% of the payable tax of 44 lakh, or $88,000, would be added to your current payable tax, resulting in a new tax liability of 44.88 lakh.

Concept of Marginal Relief

For certain individuals, the idea of marginal relief alleviates the burden of surcharge. When an individual’s revenue reaches a certain threshold, a surcharge is levied. On the other hand, taxpayers end up paying a sizable surcharge even though their salaries barely meet the surcharge threshold. The principle of marginal relief was adopted to save taxpayers from certain instances of surcharge. The marginal relief guarantees that the actual amount of tax owed, minus the surcharge, does not surpass the amount of revenue requiring the surcharge to be added.

Assume you have a net income of 50.10 lakh rupees. As per the regular rate, your new payable tax is subject to a 10 per cent surcharge. As per the tax slab, your payable tax would have been roughly 1.12 Lakh if your revenue was about 50 Lakh. However, since your net revenue is 50.10 lakh, your payable tax is 13.15 lakh, and the surcharge is 1.32 lakh, taking your gross payable tax to 14.47 lakh. This number is, however, higher than the amount surpassed. In some circumstances, margin relief cuts the tax bill.

How is Marginal Relief Calculated?

Here goes the step by step process for calculating the marginal relief.

Step 1: Calculate exceeded income and increased tax

Total net income: ₹ 50.10 Lakh

Existing payable tax: ₹ 13.15 Lakh

Surcharge: ₹ 1.32 Lakh

Total payable tax: ₹ 14.47 Lakh

Step 2: Compare exceeded income and increased tax.

Exceeded income: (₹ 50.10 Lakh – ₹ 50 Lakh ) = ₹ 10,000

Increased tax: 

₹ 14.47 Lakh (total payable tax including existing tax and surcharge) – ₹ 13.12 Lakh (payable tax on ₹ 50 Lakh ) = ₹ 1.35 Lakh

In this scenario, the increased tax = ₹ 13.15 Lakh (based on ₹ 5.01 Cr) – ₹ 13.12 Lakh (based on ₹ 50 Lakh) = ₹ 3,000

Hence, the maximum surcharge amount = ₹ 10,000 (exceeded amount) – ₹ 3,000 (increased tax) = ₹ 70,000

Step 3: Calculate surcharge considering margin relief.

Total net income: ₹ 50.10 Lakh

Existing payable tax: ₹ 13.15 Lakh

Surcharge: ₹ 7,000

Total payable tax: ₹ 1.32 Cr

FAQs for Surcharge Income Tax

✅What is the difference between surcharge and cess?

A surcharge is levied when the total net income crosses the specified limit. On the other hand, cess is applied to every taxpayer of the country. Government levies this tax for creating funds for specific causes.

✅How are surcharge and cess calculated?

The surcharge is based on the exceeding amount. A particular percentage of the existing payable tax when the total income exceeds a specified limit is added to your tax liability. Cess is calculated based on the rate as instructed by the Government.

✅What is the Cess tax in India?

Cess tax in India is levied on the existing tax liability of the taxpayers. The Government imposes cess tax when there is a need for creating funds for specific purposes. The Government decides the rate.

✅What is the surcharge on income tax for FY 2019 20?

The surcharge in income tax for FY 2019 20 is imposed at rates ranging from 10% to 37% on individuals, 7% to 12% on domestic companies and 2% to 5% on foreign companies.

✅How much are surcharge and education cess on income tax?

The surcharge is decided based on the exceeding income, and education cess is levied at a rate of 4% on income tax.

✅Is surcharge applicable on TDS?

A surcharge is calculated on the total payable tax of the taxpayers. Visit Dialabank for further details.

✅How is the income tax surcharge calculated?

When the total net income of an individual, domestic company or foreign company exceeds specified limits, a particular percentage of the existing payable tax is added as a surcharge.

✅How do you calculate a fuel surcharge?

The fuel surcharges rate in India ranges from 1% to 3%, which means an amount between 1% to 3% of the fuel price is added as a surcharge. For example, if you buy fuel worth ₹ 500, you may have to pay an amount between ₹ 505 to ₹ 518.