Surcharge on Income Tax: Rates & Marginal Relief (2025-26)

Surcharge on Income Tax explained: this guide covers what Surcharge on Income Tax means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

What Is Surcharge on Income Tax?

A surcharge is an additional tax levied on the income tax payable — it is calculated as a percentage of the income tax, not directly on the income. The Government of India levies surcharge on income tax to ensure that very high-income earners contribute proportionally more to the tax pool.

Surcharge is levied under the Finance Act each year and applies over and above the regular income tax and the Health and Education Cess (4%). After adding surcharge, the cess is then calculated on the total of income tax + surcharge.

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Surcharge Rates for Individuals — FY 2025-26 (New Tax Regime)

Under the new tax regime (default from FY 2023-24), the maximum surcharge rate for individuals is capped at 25%:

Surcharge Rates — Old Tax Regime (FY 2025-26)

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Surcharge on Capital Gains — Special 15% Cap

There is an important exception for capital gains: surcharge on income from short-term capital gains (STCG) under Section 111A (listed equity shares and equity MFs) and long-term capital gains (LTCG) under Section 112A (listed equity, LTCG on equity MFs) is capped at 15% — regardless of total income.

This means even if your total income is ₹10 crore (where the surcharge would normally be 25% or 37%), the surcharge on capital gains from equity is only 15%.

Surcharge Rates for Companies — FY 2025-26

Surcharge for Partnership Firms and LLPs

Partnership firms, LLPs, and Association of Persons (AOP) / Body of Individuals (BOI) are charged:

• 12% surcharge if net income exceeds ₹1 crore
• No surcharge below ₹1 crore

Surcharge for Co-operative Societies — FY 2025-26

How Surcharge Is Calculated — Step by Step

Surcharge is calculated after computing the base income tax but before adding the 4% Health and Education Cess. The sequence is:

1. Calculate gross total income
2. Deduct Chapter VI-A deductions (under old regime)  get total taxable income
3. Apply the applicable tax rate  get base income tax
4. Calculate surcharge as a % of base income tax (based on income slab)
5. Add income tax + surcharge  apply marginal relief if applicable
6. Add Health and Education Cess @ 4% on (income tax + surcharge)

Surcharge Calculation Example — Individual (New Regime)

Assume total income = ₹60,00,000 (₹60 lakh) under new regime.

Marginal Relief on Surcharge

Marginal relief ensures that the increase in tax liability due to surcharge does not exceed the increase in income that pushed the taxpayer into the surcharge bracket. Without marginal relief, a taxpayer earning ₹50,00,001 could pay more tax than one earning ₹55,00,000 due to the surcharge jump.

Marginal relief = Surcharge  (Income above threshold). If this is positive, the surcharge is reduced by that amount.

Marginal Relief Example

Income = ₹50,10,000 (just above ₹50 lakh).

• Normal surcharge @ 10% = ₹X (high)
• Income above ₹50 lakh = ₹10,000
• Marginal relief ensures tax increase does not exceed ₹10,000 (the extra income earned)

The Income Tax Department automatically grants marginal relief when the tax increase from surcharge exceeds the incremental income. This is reflected in the tax computation in ITR forms.

Frequently Asked Questions — Income Tax Surcharge

Is surcharge applicable on TDS?

Yes. When TDS is deducted at a higher rate (for example, under Section 192 on salary above ₹50 lakh, or Section 194 on dividends from domestic companies), surcharge is factored into the TDS deduction. The employer or company deducting TDS must calculate the estimated annual income, apply the appropriate surcharge rate, and deduct TDS accordingly.

Does surcharge apply to NRIs?

Yes. Surcharge applies to Non-Resident Indians (NRIs) and foreign companies on income earned in India, at the rates applicable to their category. For NRI individuals, the same slab-based surcharge rates as resident individuals apply.

Is Health and Education Cess calculated on surcharge?

Yes. The 4% Health and Education Cess is calculated on the total of income tax plus surcharge. So the effective tax burden includes cess on both the base tax and the surcharge amount.

What is the effective maximum tax rate for individuals in FY 2025-26?

Under the new regime (max 25% surcharge): 30% tax ├ù 1.25 surcharge ├ù 1.04 cess = 39% effective rate. Under the old regime (max 37% surcharge for >₹5 crore): 30% ├ù 1.37 ├ù 1.04 = ~42.74% effective rate.

Summary

Surcharge on income tax applies when total income exceeds ₹50 lakh, at rates ranging from 10% to 37% (old regime) or capped at 25% (new regime). For capital gains on equity (Sections 111A and 112A), surcharge is capped at 15% regardless of total income. For companies, surcharge is 7% above ₹1 crore and 12% above ₹10 crore. Marginal relief prevents tax anomalies at surcharge threshold crossings. Always calculate surcharge before adding the 4% Health and Education Cess, which applies on the combined amount.