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What Is Marginal Relief Applicable To Surcharge In Income Tax?


In her maiden budget speech presented a week before, Nirmala Sitharaman increased the surcharge charged to individuals with a taxable income of more than Rs. 2 crore. Surcharge is the tax levied on the total tax payable. Notably, all of the revenue collected from this source is directly tapped by the central government.


When Does Marginal Relief Applies On Surcharge?

Taxpayers with income of more than Rs. 2 crore per annum were required to pay a surcharge of 15%. But in the Union Budget 2019, the same has been increased to 25% for those with earnings in the range of Rs. 2 crore to Rs. 5 crore. It is 37% for those with income of more than Rs. 5 crore.

Why Did The Govt Choose To Increase Surcharge And Not Income Tax?

Additionally, there are two more income slabs for which the surcharge is levied i.e. when the total taxable income ranges between Rs. 50 lakh and Rs. 1 crore, surcharge of 10% is applicable and when the income is between Rs. 1 crore and Rs. 2 crore, 15% rate applies.

Union Budget 2019 proposes increase in surcharge for high net worth individuals. Here's the table showing the surcharge rate:

S.noIncome slab Surcharge
1Rs. 50 lakh- Rs. 1 crore10%
2Rs. 1 crore -Rs. 2 crore15%
3Rs 2 crore - Rs. 5 crore25%
4Total taxable income above Rs. 5 crore37%

It is here in when marginal relief comes into picture. So what it is and how it is computed?

We'll try understanding marginal relief using an example: Say your total taxable income or earning for a year is Rs. 51 lakh, which puts you in the higher tax slab and on it you are liable to pay a surcharge of 10% which applies to income slab between Rs. 50,00,000 to Rs. 1 crore. So, when all the deductions are taken into account, your net tax liability will come up to Rs. 13,42,500 and on it a surcharge of 10% will be payable i.e. Rs. 1,34, 250. But this is higher than the difference between your taxable income i.e. Rs. 51 lakh and the margin amount that puts you in the said tax bracket i.e. Rs. 1 lakh (Rs. 51 lakh less of Rs. 50 lakh).


This inconsistency is adjusted by applying marginal relief to surcharge. In the above example, net income over Rs. 50 lakhs comes to be Rs. 70,000 ( Rs. 1lakh which is more than the threshold limit of Rs. 50,0000 minus of 30% income tax). So, the surcharge would be Rs. 70,000 and the total tax liability would be Rs. 14,12,500 plus additional education and health cess at 4% equal to Rs. 56,500, taking the net payable tax to Rs. 14,69,000.

So, as per Income tax Act 1961, marginal relief is extended to taxpayers with taxable income more than the threshold limit on which surcharge becomes applicable, but the net income above the threshold is less than the surcharge.

Read more about: income tax surcharge
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