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Surcharge is an additional charge calculated on income tax. It applies only when total income crosses specified thresholds. Health and Education Cess is then calculated at 4% on the combined amount of income tax and surcharge.
Surcharge is not charged on total income. It is charged on the computed income tax. Marginal relief prevents the extra tax caused by crossing a threshold from exceeding the amount of income above that threshold.
Individual, HUF, AOP, BOI and artificial juridical person
| Total income | Old regime or specified cases | Default new regime |
|---|---|---|
| Up to ₹50 lakh | Nil | Nil |
| Above ₹50 lakh up to ₹1 crore | 10% | 10% |
| Above ₹1 crore up to ₹2 crore | 15% | 15% |
| Above ₹2 crore up to ₹5 crore | 25% | 25% |
| Above ₹5 crore | 37% | 25% |
For AY 2026-27, the new-regime surcharge does not rise above 25%. A maximum surcharge rate of 15% applies to tax on dividend income and specified capital gains. The cap applies to the tax attributable to those incomes, not necessarily to tax on the taxpayer’s entire income.
An AOP consisting only of companies may also be subject to the statutory surcharge cap, subject to the applicable provision and facts.
Other taxpayer categories
| Taxpayer | Surcharge |
|---|---|
| Firm or local authority | 12% where total income exceeds ₹1 crore |
| Domestic company under normal provisions | 7% above ₹1 crore up to ₹10 crore; 12% above ₹10 crore |
| Domestic company under specified concessional corporate regimes | Generally 10% irrespective of income level |
| Foreign company | 2% above ₹1 crore up to ₹10 crore; 5% above ₹10 crore |
| Co-operative society under normal provisions | 7% above ₹1 crore up to ₹10 crore; 12% above ₹10 crore |
How marginal relief works
Marginal relief compares:
- tax plus surcharge at the taxpayer’s actual total income; and
- tax plus surcharge at the immediately lower threshold, increased by only the excess income over that threshold.
If the first amount is higher, the difference is allowed as marginal relief. Cess is added after marginal relief.
Example 1: Income of ₹50.10 lakh under the default new regime
| Particulars | Amount |
|---|---|
| Income tax before surcharge | ₹10,83,000 |
| Surcharge at 10% | ₹1,08,300 |
| Tax plus regular surcharge | ₹11,91,300 |
| Tax plus surcharge at ₹50 lakh | ₹10,80,000 |
| Add: excess income over ₹50 lakh | ₹10,000 |
| Maximum tax plus surcharge after marginal relief | ₹10,90,000 |
| Marginal relief | ₹1,01,300 |
| Add: 4% cess | ₹43,600 |
| Total tax after marginal relief and cess | ₹11,33,600 |
Example 2: Income of ₹1.01 crore under the default new regime
| Particulars | Amount |
|---|---|
| Income tax before surcharge | ₹26,10,000 |
| Surcharge at 15% | ₹3,91,500 |
| Tax plus regular surcharge | ₹30,01,500 |
| Tax plus surcharge at ₹1 crore | ₹28,38,000 |
| Add: excess income over ₹1 crore | ₹1,00,000 |
| Maximum tax plus surcharge after marginal relief | ₹29,38,000 |
| Marginal relief | ₹63,500 |
| Add: 4% cess | ₹1,17,520 |
| Total tax after marginal relief and cess | ₹30,55,520 |
Where the return contains dividend or specified capital-gains income, surcharge must be computed income-wise. Applying one surcharge rate to the entire tax may produce an incorrect result.
AY 2026-27 versus Tax Year 2026-27
Returns for FY 2025-26/AY 2026-27 remain governed by the Income-tax Act, 1961 and the Finance Act applicable to that assessment year. Income earned from 1 April 2026 is governed by the Income-tax Act, 2025 for Tax Year 2026-27. The applicable rates should therefore be selected by year rather than by the return-filing date.
Common mistakes
- Calculating surcharge directly on total income.
- Applying 37% surcharge under the default new regime.
- Ignoring the 15% surcharge cap for specified income.
- Computing cess before allowing marginal relief.
- Using individual surcharge rates for a firm, company or co-operative society.
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