In the financial year 2023-24, surcharge rates applicable to individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), Bodies of Individuals (BOI), and Artificial Juridical Persons (AJP) are determined based on both the nature of income and the total income earned during the year. Surcharge is an additional charge on the base income tax payable and serves as a mechanism to impose a higher tax burden on taxpayers with elevated income levels. It is designed to ensure progressivity in the tax system by increasing the effective tax rate as income rises.
The calculation of surcharge depends primarily on the total taxable income falling within specified income slabs. For individuals, HUFs, AOPs, BOIs, and AJPs, different surcharge rates apply to various income brackets. The surcharge is levied as a percentage of the income tax computed on the total taxable income, excluding cess. The rates vary depending on whether the income arises from specified sources such as capital gains or business income, or other income categories like salaries, interest, or rental income.
Typically, surcharge rates escalate as income crosses threshold limits. For instance, individuals and entities with income exceeding ₹50 lakh but below ₹1 crore attract a surcharge rate of 10% on the income tax payable. For incomes above ₹1 crore and up to ₹2 crore, the surcharge rate rises to 15%, and for those earning between ₹2 crore and ₹5 crore, it can go up to 25%. The highest surcharge rate of 37% applies to income slabs exceeding ₹5 crore. These slabs ensure a graduated increase in the tax liability of high-income taxpayers, reflecting the progressive nature of the tax system.
Furthermore, the surcharge rates differ slightly based on the type of income. For example, long-term capital gains (LTCG) on the sale of equity shares or equity-oriented mutual funds may attract different surcharge rates compared to business income or salary income. The Finance Act often stipulates such differential surcharge treatments to align tax policy with economic objectives, such as encouraging investment or discouraging speculative activities.
Surcharge on Short-Term Capital Gains under Section 111A or Section 115AD
If total income includes short-term capital gains under Section 111A or income taxable under Section 115AD, surcharge applies as follows. No surcharge if income is up to Rs. 50 lakh. For income above Rs. 50 lakh up to Rs. 1 crore, surcharge is 10 percent. Between Rs. 1 crore and Rs. 2 crore, surcharge is 15 percent. From Rs. 2 crore to Rs. 5 crore, it remains 15 percent, and above Rs. 5 crore, it is 15 percent.
Surcharge on Long-Term Capital Gains under Section 112A, Section 115AD, or Section 112
Long-term capital gains taxable under Section 112A, 115AD, or 112 attract no surcharge up to Rs. 50 lakh. Income above Rs. 50 lakh and up to Rs. 1 crore faces 10 percent surcharge. Between Rs. 1 crore and Rs. 2 crore, surcharge is 15 percent. The same 15 percent surcharge applies for income between Rs. 2 crore and Rs. 5 crore, and above Rs. 5 crore.
Surcharge on Dividend Income Not Taxed at Special Rates
Dividend income not subject to special tax rates under sections such as 115A, 115AB, 115AC, and 115ACA has no surcharge up to Rs. 50 lakh. Surcharge is 10 percent between Rs. 50 lakh and Rs. 1 crore. It is 15 percent for income between Rs. 1 crore and Rs. 2 crore, and remains 15 percent beyond Rs. 2 crore.
Surcharge on Unexplained Income under Section 115BBE
Income assessed under Section 115BBE for unexplained cash credits or investments attracts a flat surcharge of 25 percent on tax payable regardless of income amount. This high surcharge applies irrespective of total income.
Surcharge on Other Income
Other income types not covered by preferential capital gains or dividend rates have no surcharge up to Rs. 50 lakh. Between Rs. 50 lakh and Rs. 1 crore, surcharge is 10 percent. Between Rs. 1 crore and Rs. 2 crore, surcharge is 15 percent. Between Rs. 2 crore and Rs. 5 crore, surcharge rises to 25 percent. For income above Rs. 5 crore, surcharge is 37 percent. However, for assessees opting for the new tax regime under Section 115BAC, surcharge on other income is capped at 25 percent even beyond Rs. 5 crore.
Special Provision for AOP Consisting Only of Companies
An AOP made up exclusively of companies faces a capped surcharge rate. If total income exceeds Rs. 50 lakh but does not exceed Rs. 1 crore, surcharge is 10 percent. If income exceeds Rs. 1 crore, surcharge is capped at 15 percent.
Surcharge on Income of Specified Funds under Section 10(4D)
For specified funds whose income includes amounts (other than capital gains) taxable under Section 115AD, no surcharge is levied on tax payable on such income.
Interaction Between Different Types of Income for Surcharge Purposes
If an assessee’s total income includes dividend income or capital gains along with other income, surcharge on dividend or capital gains tax is capped at 15 percent. If other income does not exceed Rs. 2 crore but combined income exceeds Rs. 2 crore, surcharge of 15 percent applies on the total tax payable. This prevents a higher surcharge purely due to capital gains or dividend income crossing a threshold.
Surcharge Rates for Companies in Financial Year 2023-24
Surcharge rates for companies depend on whether the company is domestic or foreign, and also on the specific provisions under which it opts for taxation. The surcharge is levied on the income tax payable by the company, based on its total income range.
Surcharge on Domestic Companies Opting for Section 115BA
A domestic company opting for the concessional tax regime under Section 115BA is not liable to pay any surcharge if its total income is Rs. 1 crore or less. If total income exceeds Rs. 1 crore but is up to Rs. 10 crore, the surcharge rate is 7 percent. For income above Rs. 10 crore, the surcharge is 12 percent.
Surcharge on Domestic Companies Opting for Section 115BAA
Domestic companies opting for the tax regime under Section 115BAA pay a flat surcharge of 10 percent regardless of whether their income is up to Rs. 1 crore, between Rs. 1 crore and Rs. 10 crore, or above Rs. 10 crore.
Surcharge on Domestic Companies Opting for Section 115BAB
Companies eligible and opting for the tax regime under Section 115BAB also pay a flat surcharge of 10 percent irrespective of income slabs.
Surcharge on Other Domestic Companies
Domestic companies not opting for the above concessional tax regimes face no surcharge up to Rs. 1 crore income. For income above Rs. 1 crore and up to Rs. 10 crore, the surcharge is 7 percent. For income exceeding Rs. 10 crore, the surcharge rate is 12 percent.
Surcharge on Foreign Companies
Foreign companies have lower surcharge rates. There is no surcharge if the total income is Rs. 1 crore or less. For income between Rs. 1 crore and Rs. 10 crore, surcharge is 2 percent. For income above Rs. 10 crore, surcharge increases to 5 percent.
Surcharge on Unexplained Income for Companies
If a company has income assessed as unexplained under Section 115BBE, the surcharge rate is fixed at 25 percent regardless of income level or company status.
Surcharge Rates for Co-operative Societies
Co-operative societies have distinct surcharge provisions depending on whether they opt for certain concessional tax regimes or not.
Co-operative Societies Opting for Section 115BAD and 115BAE
Co-operative societies opting for the concessional tax rates under Section 115BAD or 115BAE pay a flat surcharge of 10 percent on income tax payable irrespective of income slab.
Surcharge on Other Co-operative Societies
Co-operative societies not opting for concessional tax regimes pay no surcharge if total income is Rs. 1 crore or less. For income between Rs. 1 crore and Rs. 10 crore, surcharge is 7 percent. For income exceeding Rs. 10 crore, surcharge increases to 12 percent.
Surcharge Rates for Firms and Limited Liability Partnerships
Firms, including Limited Liability Partnerships (LLPs), have surcharge rates that differ from companies.
There is no surcharge if the income is Rs. 50 lakh or less. For incomes between Rs. 50 lakh and Rs. 1 crore, no surcharge applies. When income exceeds Rs. 1 crore but is up to Rs. 10 crore, surcharge is 12 percent. The same 12 percent surcharge applies if income exceeds Rs. 10 crore.
Surcharge Rates for Local Authorities
Local authorities follow similar surcharge rates for firms and LLPs. No surcharge applies if the income is Rs. 50 lakh or less. For income above Rs. 50 lakh and up to Rs. 1 crore, no surcharge is applicable. Surcharge is 12 percent on income tax payable if the total income exceeds Rs. 1 crore.
Surcharge on Income from Unexplained Sources
Income from unexplained sources, assessed under Sections 68, 69, 69A, 69B, 69C, and 69D, attracts a flat surcharge of 25 percent on tax payable. This surcharge applies irrespective of the total income and without any ceiling. There is no marginal relief available on surcharge for such income. Consequently, the effective tax rate for unexplained income is extremely high, combining the basic tax rate of 60 percent, surcharge of 25 percent, and health and education cess of 4 percent, totaling approximately 77.25 percent.
Surcharge Under Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT)
Surcharge is applicable even when an assessee is liable to pay tax under the Minimum Alternate Tax (MAT) or Alternate Minimum Tax (AMT) provisions. These provisions are designed to ensure that companies and certain taxpayers who have substantial book profits or adjusted incomes pay a minimum amount of tax, thereby preventing the excessive use of deductions, exemptions, or tax incentives that might otherwise reduce their tax liability to negligible amounts. In such cases, surcharge is levied on the amount of tax payable, which is calculated based on ‘book profit’ for MAT or ‘adjusted total income’ for AMT, depending on the applicable regime.
To determine whether a surcharge applies, the book profit or adjusted total income is treated as the total income of the assessee. This approach is significant because it aligns the surcharge computation with the economic capacity of the taxpayer, rather than merely the taxable income computed under the normal provisions. Essentially, if the book profit or adjusted total income exceeds the prescribed income thresholds, the corresponding surcharge rates are applied to the MAT or AMT tax liability, increasing the overall tax burden.
Under MAT, which primarily applies to companies, the tax is calculated as a percentage of the book profit reported in the financial statements, with specific adjustments prescribed under the Income Tax Act. Once the MAT liability is computed, surcharge is applied based on the level of book profit, following the surcharge slabs notified by the government for that financial year. For instance, if the book profit exceeds ₹1 crore but is less than ₹2 crore, the surcharge rate on MAT payable might be 15%, whereas for profits exceeding ₹5 crore, the surcharge could be as high as 37%.
Similarly, under AMT, applicable to specified non-corporate taxpayers such as firms, Limited Liability Partnerships (LLPs), and individuals opting for presumptive taxation schemes, the tax is computed on the adjusted total income, which adds back certain deductions or expenses disallowed under AMT rules. Here, too, surcharge is imposed on the tax computed under AMT if the adjusted total income crosses the defined thresholds.
The implication of applying a surcharge on MAT and AMT tax liabilities is that it increases the effective tax rate for taxpayers subject to these regimes. While MAT and AMT aim to ensure a minimum tax base, the addition of surcharge further elevates the tax outgo, making it essential for taxpayers to consider surcharge impacts when planning their tax strategies. This also underscores the importance of meticulous tax planning and accurate computation of book profits or adjusted total income to manage overall tax liabilities efficiently.
Surcharge on Secondary Adjustment Under Transfer Pricing Regulations
In certain situations involving transfer pricing adjustments, an additional or secondary adjustment may be imposed to correct the transfer pricing discrepancies. If an assessee has to pay tax under Section 92CE(2A) to avoid secondary adjustment, the surcharge on such tax is fixed at 12 percent.
This surcharge rate is a specific provision designed to address transfer pricing compliance and discourage profit shifting between associated enterprises. The surcharge increases the total tax burden in the event of a secondary adjustment.
Surcharge on Tax Payable on Distributed Income
There are specific cases where tax is payable on distributed income under different sections of the Income Tax Act. These cases include tax on buy-back of shares, income distributed by securitisation trusts, and tax payable on accreted income. Surcharge rates on such tax liabilities are uniformly fixed at 12 percent.
Tax Payable on Buy-Back of Shares Under Section 115QA
When a company buys back its shares, it is required to pay tax on the distributed income. The surcharge on this tax is levied at 12 percent, increasing the effective tax rate on buy-back transactions.
Tax on Income Distributed by Securitisation Trusts Under Section 115TA
Income distributed by securitisation trusts to investors is subject to tax, with surcharge fixed at 12 percent on the tax payable. This ensures an increased tax liability on distributed income in securitisation structures.
Tax Payable on Accreted Income Under Section 115TD
Accreted income, which refers to the income accumulated but not yet received, is taxable under Section 115TD. The surcharge on the tax payable in this context is also fixed at 12 percent.
Cap on Surcharge Rate for Long-Term Capital Gains
The Finance Act, 222,, introduced a cap on the rate of surcharge for long-term capital gains taxable under Section 112. Starting from the Assessment Year 2023-24, the surcharge rate on such long-term capital gains cannot exceed 15 percent. This cap protects taxpayers from excessively high surcharge rates on their capital gains income.
Importance of Understanding Surcharge Rates
Understanding surcharge rates is essential for taxpayers to accurately estimate their tax liabilities. Since surcharge is levied on the tax payable and varies according to income slabs and income types, it can significantly affect the overall tax outgo. Taxpayers need to be aware of how different income types are treated and how opting for different tax regimes impacts surcharge rates.
Tax planning strategies should incorporate surcharge implications to optimize tax efficiency. Awareness of caps, special provisions, and different rates applicable to various entities helps avoid surprises during tax assessment and filing.
Overview of Surcharge Rates for Different Assessees
Surcharge rates differ significantly based on the nature of the assessee and the type of income earned. Individuals, Hindu Undivided Families, Associations of Persons, and Artificial Juridical Persons face varying surcharge slabs depending on income range and income type. Companies, cooperative societies, firms, and local authorities have their surcharge structures with different rates and thresholds. Special provisions also apply to income from unexplained sources, MAT and AMT cases, and distributed income.
Understanding these distinctions is crucial for accurate tax computation and compliance.
Impact of Surcharge on Tax Liability
Surcharge is calculated on the amount of income tax payable rather than on the total income. This means that higher surcharge rates at increased income levels result in a proportionately larger increase in the overall tax liability. For high-income taxpayers, surcharge can add a significant additional tax burden.
Particularly, for income from unexplained sources, the surcharge is very steep at 25 percent, leading to an effective tax rate exceeding 77 percent. This is designed as a deterrent to tax evasion and unaccounted income.
Surcharge and New Tax Regime Under Section 115BAC
The new tax regime introduced under Section 115BAC allows individuals and Hindu Undivided Families to opt for concessional tax slabs with no exemptions or deductions. For assessees opting for this regime, the surcharge on other income exceeding Rs. 5 crore is capped at 25 percent. This cap aims to provide relief to high-income individuals who choose the new tax regime.
Taxpayers should carefully evaluate their tax regime options to benefit from such surcharge caps.
Importance of Compliance and Planning
Accurate understanding and application of surcharge rates are essential for compliance with tax laws and effective tax planning. Failure to correctly calculate surcharge can lead to underpayment or overpayment of taxes, which may attract penalties or result in loss of funds unnecessarily.
Taxpayers and tax professionals must stay updated with amendments and notifications issued by the government to apply the surcharge correctly during tax computation and filing.
Conclusion
The surcharge is an additional tax levied on the income tax payable by a taxpayer, designed as a progressive measure to ensure that higher income earners contribute proportionately more to government revenues. It is not levied directly on the total income but on the amount of income tax calculated as per the applicable tax slabs. The surcharge rates vary depending on multiple factors, including the total income slab, the type of income earned, and the category of the taxpayer, such as individuals, companies, or cooperative societies. This gradation of surcharge rates strengthens the progressive nature of the tax system and serves as an important fiscal tool for resource mobilization.
For the financial year 2023-24, the government has fine-tuned surcharge rates to balance revenue generation with taxpayer relief in select areas. A notable feature of the surcharge structure for this year is the relief provided to certain taxpayers, such as those earning long-term capital gains (LTCG) from equity shares or equity-oriented mutual funds. While LTCG has been subject to tax since FY 2018-19, the surcharge rates for these gains have been adjusted to moderate levels to encourage investment and reduce the tax burden on retail investors. Similarly, taxpayers opting for the new tax regime, introduced to simplify tax compliance with concessional rates and no exemptions, have also been accorded relatively lower surcharge slabs, making the new regime more attractive.
At the same time, the government has maintained deterrent surcharge rates on unexplained income or income considered as “income escaping assessment.” These higher rates are meant to discourage tax evasion and ensure stricter compliance. In such cases, surcharge rates can be substantially higher, sometimes reaching up to 37%, reflecting the government’s commitment to curbing black money and enhancing tax transparency.
Companies, cooperative societies, and other categories of assessees have their surcharge slabs aligned with their income brackets. For companies, surcharge typically kicks in at income exceeding ₹1 crore, with incremental rates up to 12% or more depending on total taxable income. Cooperative societies have a different surcharge scale, often lower, but similarly progressive.
Understanding these surcharge rates is critical for taxpayers because it directly influences the effective tax rate and thus the overall tax liability. Taxpayers, especially those in higher income brackets, must factor in surcharge implications when planning their finances, investments, and compliance strategies. Moreover, awareness of surcharge applicability assists in timely and accurate tax filing, avoiding inadvertent non-compliance or penalties.