What is Surcharge on Income Tax in India?

‘Surcharge’ is an additional charge or tax levied on an existing tax. 

Unlike a cess, which is meant to raise revenue for a temporary need, surcharge is usually permanent in nature.

 It is levied as a percentage on the income tax payable as per normal rates. 

In case no tax is due for a financial year, then no surcharge is levied.

 The revenue earned via surcharge is solely retained by the Centre and, unlike other tax revenues, is not shared with States. 

Collections from surcharge flow into the Consolidated Fund of India.

Surcharges, in India, are used to make the taxation system more ‘progressive’. 

They are used to ensure that the rich contribute more to the tax kitty than the poor. 

Traditionally, the assumption has been that companies can pay higher taxes than individuals and corporate taxes have been subject to surcharge.

In the 2013 Budget, a 10-per cent surcharge on super-rich individuals was introduced by the UPA government.

 It was thereafter hiked to 12 per cent by the NDA in the 2015 Budget.

 In 2016, the rate climbed to 15 per cent. Increases in surcharge are usually easy to push through than across-the-board increases in tax rates, as they only impact a small, more affluent segment.

Currently, wealthy individuals and companies are liable to pay a surcharge on their tax outgo. 

Individuals earning a taxable income of over ₹1 crore have to shell out a surcharge amounting to 15 per cent of their tax outgo.

So, if your taxable income is ₹1.2 crore, your income tax payable works out to ₹34.25 lakh.

 The 15 per cent surcharge will be computed on this amount, at ₹5.13 lakh. 

Thus, the total tax payable is ₹39.38 lakh without including cess.

Partnership firms earning over ₹1 crore in taxable income pay a surcharge of 12 per cent. Domestic firms earning ₹1 crore to ₹10 crore pay a 7 per cent surcharge and those earning over ₹10 crore pay 12 per cent.