Extra Tax on High Income (Surcharge)

A surcharge is an additional tax levied on the basic income tax for individuals or entities whose income exceeds a certain threshold.

• It is not a separate tax, but a percentage of the income tax payable.

• The main purpose is progressive taxation, making high-income earners contribute a higher proportion of tax.

2. Applicability

• Surcharge is applicable when total income exceeds a specified limit.

• The threshold and percentage vary for individuals, Hindu Undivided Families (HUFs), domestic companies, foreign companies, etc.

• The government may change thresholds and rates annually in the Union Budget.

3. Rates (for Individuals – FY 2025-26, as per latest IT rules)

Example: If your income tax is ₹10 lakh and total income exceeds ₹1 crore but ≤ ₹2 crore, surcharge = 15% of ₹10 lakh = ₹1.5 lakh.

4. Calculation of Tax with Surcharge

Step 1: Compute Income Tax as per applicable slab.
Step 2: Apply surcharge on the computed tax (if income crosses threshold).
Step 3: Add Health & Education Cess (4%) on (Income Tax + Surcharge).

Example:

• Total Income: ₹1.2 crore

• Income Tax (before surcharge): ₹30,00,000

• Surcharge (15%): ₹30,00,000 × 15% = ₹4,50,000

• Subtotal: ₹30,00,000 + ₹4,50,000 = ₹34,50,000

• Health & Education Cess (4%): ₹34,50,000 × 4% = ₹1,38,000

• Total Tax Payable: ₹34,50,000 + ₹1,38,000 = ₹35,88,000