1. What is a surcharge?
The surcharge is an extra levied amount, tax, or fee on the price of goods or services. This is basically added to the initial cost of the goods or services but not a part of the initial price. Additionally, a surcharge on income is a type of income tax added depending on the income of the individual or entity. In the case of individuals, if the income is more than the limit of RS. 50 Lakhs. In the case of companies, income should be more than 1 crore. The income tax also has a ‘surcharge on income tax’ provision for taxpayers whose income exceeds the tax slab limit of 30%. These people are liable to pay the applicable surcharge on their taxable income.
2. Surcharge Rates For Distinct Taxpayers
The surcharge rates for taxpayers vary based on their type and income. We have mentioned all the surcharge rates applicable to the different entitled and individuals in tabular form for a clear understanding. Here it is to be noted that the foreign companies are liable to pay surcharge tax only when their income is between 1 crore to 10 crore or more than that. Moreover, there is a provision in the income tax act, according to that you can get a marginal relief on the applicable surcharge in case your income is above the limit of Rs. 50 lakhs.
3. What is marginal relief?
Marginal means a provision that provides relaxation on the applicable surcharge provided to taxpayers whose taxable income is more than the prescribed limit. Marginal relief can only be utilized on surcharge not on health or education cess. This is equal to the taxes payable on income surpassing the predefined limit. This provision ensure that the income tax neither less nor above the income limits. The government had announced different marginal relief for the surcharge payer. Let’s understand below the concept of marginal provision.
4. Marginal relief for individual
Situation A: Amit is earning Rs. 51 lakh in the financial year 2020-21. He needs to pay taxes with a 10% surcharge, and his tax payable is Rs. 14,76,750. However, the total tax liability should have amounted to Rs. 13,12,500 for an income of Rs. 50 lakh (without cess). This means that for an additional income of Rs. 100,000 lakh, he is now left with a tax worth Rs. 1,64,250. To avoid any additional tax, there must be a reduction in Amit’s tax liability. So, Amit will be liable to a marginal relief of Rs. (1,64,250 – 1,00,000) = Rs. 64,250. Here, Rs. 1,64,250 = Rs. (14,76,750 – 13,12,500) and Rs. 1,00,000 = Rs. (51,00,000 – 50,00,000). Thus, Amit’s tax liability for Rs. 51 lacks is Rs. 14,12,500. Situation B: Vini earned Rs. 1.01 crore during a fiscal year. She must pay taxes with a 15% surcharge, and his tax payable is Rs. 32,68,875. However, for earnings of Rs. 1 crore, the total tax liability should have amounted to Rs. 30,93,750. Thus, for an additional income of Rs. 1 lakh, she has a tax liability worth Rs. 1,75,125. For this, she will be liable to a marginal relief of Rs. (1,75,125 – 1,00,000) = Rs. 75,125. Here, Rs. 1,75,125 = Rs. (32,68,875 – 30,93,750) and Rs. 1,00,000 = Rs. (1.01 crore – 1 crore). So, Vini’s tax liability for an income of Rs. 1.01 crore will be Rs. 31,93,750.
5. Marginal Relief For Domestic Companies
Situation A: when a company has earned an income more than Rs. 10 crores, then a surcharge will be applicable at the rate of 12%. moreover, if a foreign company’s income is more than Rs. 10 crore, a surcharge will be levied at the rate of 5%. Companies earning an income of more than Rs. 10 crores will get marginal relief as per the prescribed surcharge (mentioned above). The tax payable and the applicable surcharge on higher income must not surpass the tax liability of Rs. 1 crore by more than the earnings that go beyond Rs. 10 crores. Situation B: 7% of the surcharge will be levied if a domestic company’s income is more than Rs. 1,00,000,00 and not more than Rs. 10 crores. Moreover, in the case of a foreign company, when their income is more than Rs. 1 crore but less than Rs. 10 crores, a surcharge will be levied at the rate of 2%.
6. Marginal Relief For Firms
If an entity is earning an income of more than Rs. 1,00,00,000 then a surcharge is levied on income at the rate of 12%. Thus, taxpayers with income above Rs. Rs. 1,00,00,000 crore will have marginal relief. For instance- suppose the Firm XYZ has an income of Rs. 1,00,00,000 crore then it must pay tax with a 12% surcharge, and its tax payable would be Rs. 32,24,000. For an income of Rs. 1,00,00,000 crore, the total tax liability should be Rs. 31,20,000. This shows that for an extra income of Rs. 100,000 it closes with a tax liability worth Rs. 1,04,000. So, the marginal relief for Firm XYZ would be Rs. (1,04,000 – 1,00,000) = Rs. 4,000.
Frequently Asked Questions
Can Individuals claim the marginal relief?
Yes. Individuals can also claim marginal relief.
What is the surcharge rate, and who is required to pay it?
The surcharge rate varies based on the taxpayer's income level and the applicable tax slab. It is applicable to individuals, Hindu Undivided Families (HUFs), firms, and companies whose taxable income exceeds a specific threshold limit.
What is the purpose of marginal relief in income tax?
Marginal relief is a provision in the income tax law that provides relief to taxpayers who fall in a higher tax bracket due to a small increase in their income.
Is the marginal relief applicable to all taxpayers in India?
No, marginal relief is only applicable to individual taxpayers who earn income above the basic exemption limit and fall in the higher tax bracket.
Can taxpayers claim a refund of the excess tax paid due to the surcharge and marginal relief?
Yes, taxpayers can claim a refund of the excess tax paid due to the surcharge and marginal relief. They can do so by filing an income tax return and claiming the refund amount through the tax department's online portal or by submitting a physical refund application to the department.