The income tax surcharge is an additional charge levied on high-income taxpayers in India, calculated on the tax payable and not on total income. For FY 2025-26 (AY 2026-27), the surcharge slabs, the crucial concept of marginal relief, and the key difference between the old and new regimes remain important for anyone with income above Rs 50 lakh. This guide from TAXAJ explains how surcharge works, how marginal relief protects you at threshold boundaries, and how the numbers play out with a worked example.<\/p>\n
A surcharge is a tax on tax. Once your income tax liability is computed on your total income, an additional percentage is applied on that tax amount if your income crosses specified thresholds. It is important to remember two points:<\/p>\n
The surcharge slabs for individuals, HUFs, AOPs and BOIs are progressive. The single biggest difference between the two regimes is at the top end: the old regime goes up to 37%, but the new regime (Section 115BAC) caps the surcharge at 25%.<\/p>\n
| Total Income<\/th>\n | Old Regime<\/th>\n | New Regime<\/th>\n<\/tr>\n<\/thead>\n |
|---|---|---|
| Up to Rs 50 lakh<\/td>\n | Nil<\/td>\n | Nil<\/td>\n<\/tr>\n |
| Above Rs 50 lakh up to Rs 1 crore<\/td>\n | 10%<\/td>\n | 10%<\/td>\n<\/tr>\n |
| Above Rs 1 crore up to Rs 2 crore<\/td>\n | 15%<\/td>\n | 15%<\/td>\n<\/tr>\n |
| Above Rs 2 crore up to Rs 5 crore<\/td>\n | 25%<\/td>\n | 25%<\/td>\n<\/tr>\n |
| Above Rs 5 crore<\/td>\n | 37%<\/td>\n | 25% (capped)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Because the new regime caps the surcharge at 25%, taxpayers with very high incomes (above Rs 5 crore) often find the new regime materially cheaper on the surcharge component alone. Note also that on certain capital gains under Sections 111A, 112 and 112A and on dividend income, the surcharge is restricted to a maximum of 15% under both regimes.<\/p>\n What is marginal relief?<\/h2>\nMarginal relief prevents an unfair jump in tax when your income only just crosses a surcharge threshold. Without it, earning one rupee above Rs 50 lakh could increase your total tax by far more than that extra rupee, which would be irrational.<\/p>\n The governing principle is simple: the additional tax (including surcharge) payable because you crossed the threshold cannot exceed the amount of income by which you crossed it. In other words, the total tax plus surcharge on your income should not be more than the tax on the threshold income plus the income earned above that threshold.<\/p>\n Worked example: income of Rs 51,00,000 (old regime)<\/h3>\nConsider an individual under the old regime with a total income of Rs 51,00,000. This crosses the Rs 50 lakh mark, so a 10% surcharge applies. Let us compute the position step by step.<\/p>\n
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