Surcharge on Income Tax
March 23, 2023|
5 mins read
Surcharge on income tax
Income tax is one of the primary revenue sources of the Indian Government. The Indian Government imposes a surcharge on taxpayers who earn income above a certain threshold to charge a higher rate of tax from high-income earners. Consequently, it is generally calculated as a percentage of the income tax payable by the taxpayer.
Who are liable to pay a surcharge?
Specifically, surcharge is applicable to the following categories of taxpayers: –
- Hindu Undivided Families (HUFs);
- Firms (including Limited Liability partnerships); and
The taxpayer’s net tax payable serves as the basis for calculating the surcharge.
Rates of Surcharge on Income Tax: –
The rate of surcharge varies on the basis of the income of the taxpayer. They are as under:-
|Type of Taxpayer||Income Limit||Applicable Surcharge Rate on Income tax
|Individual/HUF/AOP/BOI/Artificial Judicial Person||Less than Rs 50 Lakhs||Nil|
|Individual/HUF/AOP/BOI/Artificial Judicial Person||Rs.50 Lakhs to Rs. 1 Cr.||10%
|Individual/HUF/AOP/BOI/Artificial Judicial Person||Rs.1 Cr. to Rs 2 crs.||15%|
|Individual/HUF/AOP/BOI/Artificial Judicial Person||Rs.2 Crs to Rs 5 crs.||25%|
|Individual/HUF/AOP/BOI/Artificial Judicial Person||More than Rs.5 Crs.||37%*|
|Firm/LLP/Local authorities/Co-operative Society||More than Rs.1 Cr.||12%|
|Domestic Company||Rs.1 Cr to Rs.10 Crs.||7%|
|Domestic Company||More than Rs.10 Crs.||12%|
|Foreign Company||Rs.1 Cr to Rs.10 Crs||2%|
|Foreign Company||More than Rs.10 Crs||5%|
*Whereas the proposed rate of surcharge on income tax under the new regime ranges from 10% to 25% which is applicable from FY 2023-24.
Different perspectives by different sectors on a surcharge on income tax: –
The application of surcharge helps the Government to reduce income inequality in the country. The Government can use the funds for Various social welfare programs and infrastructure projects.
However, some people argue that the application of the surcharge is biased, as it targets only high-income earners. Moreover, it can also inspire tax evasion, as taxpayers may seek to hide their income to avoid paying the surcharge. Additionally, it can also lead to tax evasion, as taxpayers may seek to move their income to other jurisdictions with lower tax rates.
To ensure that high-income earners pay their fair share of taxes, Governments levy surcharges as an additional tax. However, although subject to analysis, it is a necessary tool for encouraging income equality and distributing the tax burden fairly. The surcharge is likely to remain an important source of revenue for years to come as Governments continue to grapple with budget deficits and other fiscal challenges.
Section 115BA of Income Tax, 1961