In India’s income tax system, the surcharge plays a vital role in determining how much tax a high-income individual or a company ultimately pays. While most taxpayers are familiar with the basic income tax rates and slabs, many are less aware of the concept of a surcharge —an additional tax levied on the income tax itself, not directly on the income. Understanding the concept of surcharge is important for accurate tax computation and effective financial planning, especially for high-income earners and corporate taxpayers.
This blog explains what a surcharge is, how it is calculated, current surcharge rates for individuals and companies, and other key details you should know for FY 2024–25 (AY 2025–26).
What is a Surcharge?
A surcharge is an additional tax imposed on the income tax payable, not on total income. It is applicable when a taxpayer’s total income exceeds a certain threshold set by the government.
In simple terms:
Total Tax Payable = Income Tax + Surcharge + Health and Education Cess (4%)
For example, if your calculated income tax is ₹10 lakh and a 10% surcharge will apply on it, then your total tax before cess would be ₹11 lakh (₹10 lakh + ₹1 lakh surcharge).
The purpose of a surcharge is to ensure that high-income individuals and companies contribute more to the government revenue, which aligns with the principle of progressive taxation, where those with higher incomes pay a higher proportion of the tax.
Why is a Surcharge Levied?
The government imposes a surcharge primarily to increase revenue collection from higher-income groups without changing the base tax rates for all taxpayers.
The key objectives include:
- Equity in taxation: The higher-income earners have a greater ability to pay taxes.
- Revenue generation: It enhances the government’s funds for the purpose of development and welfare schemes.
- Flexibility: The government can adjust the surcharge rates annually via the Union Budget without changing the core of the tax slabs.
- Targeted taxation: Those who are earning above a specific income limit are affected only, while keeping the middle-class taxpayers unaffected.
Surcharge on Individuals (FY 2024–25 / AY 2025–26)
Surcharge is applicable to both resident and non-resident individuals, HUFs, AOPs and BOIs. The rates differ based on the level of total income.
Surcharge Rates for Individuals under the Old Tax Regime
| Total Income (₹) | Surcharge Rate | Remarks |
| Up to ₹50 lakh | Nil | No surcharge applicable |
| ₹50 lakh – ₹1 crore | 10% | Applies to income tax |
| ₹1 crore – ₹2 crore | 15% | – |
| ₹2 crore – ₹5 crore | 25% | Reduced to 15% for certain incomes (see below) |
| Above ₹5 crore | 37% | Highest rate for ultra-rich individuals |
Note: As per Budget 2023, the maximum surcharge rate of 37% is applicable only under the old tax regime.
Surcharge Rates for Individuals under the New Tax Regime (Section 115BAC)
To make the new regime more attractive, the government reduced the highest surcharge rate to 25% earlier, and from FY 2023–24 onwards, it is now capped at 25% for all income levels…!
| Total Income (₹) | Surcharge Rate under New Regime |
| Up to ₹50 lakh | Nil |
| ₹50 lakh – ₹1 crore | 10% |
| ₹1 crore – ₹2 crore | 15% |
| Above ₹2 crore | 25% (maximum cap) |
This means that under the new tax regime, no taxpayer will pay a surcharge higher than 25%, significantly reducing the effective tax rate for those with very high incomes compared to the old regime.
Marginal Relief
One of the most important provisions related to surcharge is marginal relief.
Marginal relief ensures that the increase in the tax payable (due to surcharge) is not greater than the amount by which income exceeds the prescribed threshold.
Surcharge on Companies
Companies in India — both domestic and foreign — are also subject to a surcharge depending on their total income and tax regime.
Domestic Companies
| Total Income (₹) | Surcharge Rate |
| Up to ₹1 crore | Nil |
| ₹1 crore – ₹10 crore | 7% |
| Above ₹10 crore | 12% |
For the companies who are opting under Section 115BAA (22%) or Section 115BAB (15%), the surcharge is fixed at 10%, regardless of their income level.
Foreign Companies
| Total Income (₹) | Surcharge Rate |
| Up to ₹1 crore | Nil |
| ₹1 crore – ₹10 crore | 2% |
| Above ₹10 crore | 5% |
Thus, the corporate surcharge rates are comparatively moderate or down, because it is designed to maintain India’s competitiveness in global business taxation.
Surcharge on Firms, LLPs, and Co-operative Societies
Partnership Firms / LLPs
| Total Income (₹) | Surcharge Rate |
| Up to ₹1 crore | Nil |
| Above ₹1 crore | 12% |
Co-operative Societies
| Total Income (₹) | Surcharge Rate |
| Up to ₹1 crore | Nil |
| Above ₹1 crore | 12% |
| If opting under Section 115BAD (22%) | 10% |
Health and Education Cess
After applying the surcharge, an additional Health and Education Cess of 4% is levied on the total of Income Tax + Surcharge.
Formula:
Total Tax = (Income Tax + Surcharge) + 4% Cess
This cess funds health and educational initiatives nationwide.
Effective Tax Rate – Illustration
Let’s understand with an example of an individual under the old tax regime.
Income: ₹6 crore
Base Income Tax: ₹1,80,00,000 (approx.)
Surcharge: 37% of ₹1.8 crore = ₹66,60,000
Subtotal: ₹2,46,60,000
Health & Education Cess (4%) = ₹9,86,400
Total Tax Payable: ₹2,56,46,400
Thus, the effective tax rate rises substantially for ultra-high-income individuals due to surcharge and cess.
Key Differences Between Old and New Tax Regimes
| Feature | Old Tax Regime | New Tax Regime |
| Highest Surcharge | 37% | 25% (capped) |
| Deductions (80C, HRA, etc.) | Available | Not available |
| Objective | Suitable for those claiming exemptions | Encourages simplified taxation |
| Benefit for High-Income Earners | Less favourable due to high surcharge | More favourable due to capped surcharge |
Thus, high-income taxpayers may find the new regime more tax-efficient because of the reduced surcharge cap.
Conclusion
A surcharge on income tax is an additional levy designed to ensure equitable contributions from high-income taxpayers. While it affects only those earning above the specified thresholds, its impact on total tax liability can be remarkable. With the introduction of the new tax regime and the reduced surcharge cap, the government aims to simplify taxation and make it more balanced.
For individuals and businesses with high earnings, it’s essential to understand how surcharge affects their total tax outgo and to plan income, investments, and tax regime selection accordingly.
Being aware of surcharge rates, marginal relief provisions, and cess implications ensures you calculate your taxes correctly — and avoid unpleasant surprises at the time of filing income tax returns.
