In India, the concept of income tax surcharge based on taxpayer categorization was introduced in the Finance Act 2013. The Finance Act 2016 further increased surcharge rates for the financial year 2016-17. These rates vary depending on factors like the company or individual’s specific tax category.
A surcharge is an additional fee levied on top of the original price of a good or service. It is often added to the existing tax and is not included in the advertised price, making the final cost higher for the consumer.
Surcharges can be classified into two types, namely fixed amount and percentage. A fixed amount surcharge is a specific flat amount added to the cost, regardless of the original price. On the other hand, a percentage surcharge is a calculated amount based on a percentage of the original price.
What is Surcharge on Income Tax?
An income tax surcharge is an additional tax levied on top of the calculated income tax, not on the income itself. Different tax rates apply to different income brackets, and there are also different categories of taxpayers, subject to varying surcharge percentages.
Before calculating your income tax liability, various deductions are applied to the income based on different categories. After these deductions, your income falls into a specific tax bracket, determining the applicable surcharge rate.
Income Tax Surcharge Rate for FY 23-24
For the fiscal year 23-24 surcharge rate for an Individual (resident or non-resident), HUF, Association of Persons, Body of Individuals, or any other artificial juridical person is as follows:
Range of Income
|
Surcharge levied
|
₹50 Lakhs to ₹1 Crore
|
10%
|
₹1 Crore to ₹2 Crores
|
15%
|
₹2 Crores to ₹5 Crores
|
25%
|
Above ₹5 crore
|
37%
|
Also, the following changes are made for the surcharge levied:
- Dividend income and income taxable under sections 111A, 112, 112A, and 115AD(1)(b) are exempt from the higher surcharge rates of 25% and 37%. This means the maximum applicable surcharge on these incomes will be 15%.
- For Associations of Persons (AOPs), where all members are companies, the maximum surcharge rate is capped at 15%.
- If the total income of a “specified fund,” as defined in section 10(4D), includes any income from securities listed under section 115AD(1)(a), the surcharge rate for that year is zero. This applies to Assessment Year 2024-25.
Partnership Firms: Taxation for FY 2023-24 & FY 2024-25
Partnership firms, including LLPs, are taxed at a flat rate of 30% of their total income. Additional levies include:
Surcharge
- If the firm’s total income exceeds ₹1 crore, a surcharge of 12% is added to the income tax.
- However, this surcharge has a marginal relief provision: the total tax payable (income tax + surcharge) cannot exceed the tax on a ₹1 crore income, plus the tax due on the income exceeding ₹1 crore.
- For health and education, a cess of 4% is applied to the income tax and any applicable surcharge.
Alternative Minimum Tax (AMT)
- If the firm’s tax liability calculated under the normal provisions is less than 18.5% of its “adjusted total income,” it must pay AMT.
- In such cases, the “adjusted total income” becomes the taxable income, and the firm pays an 18.5% tax on it.
- For International Financial Services Centre (IFSC) units with income solely in foreign currency, the AMT rate is 9% (plus applicable surcharge and cess).
Ways to Reduce Your Tax Liabilities\
There are numerous legal ways to reduce your tax burden in India. Here are some of the most popular and effective options:
Investment Under Section 80C
- Public Provident Fund (PPF): A long-term, low-risk investment with attractive interest rates and a lock-in period of 15 years.
- Equity Linked Savings Scheme (ELSS): Mutual funds that offer market-linked returns along with tax benefits.
- National Pension System (NPS): A pension scheme with attractive tax benefits and market-linked returns.
- Tax Saving Fixed Deposits (FDs): Traditional fixed deposits with a lock-in period of 5 years and a fixed interest rate.
- National Savings Certificate (NSC): A low-risk investment with guaranteed returns and a lock-in period of 5 years.
- Unit Linked Insurance Plans (ULIPs): A combination of life insurance and investment with tax benefits.
- Senior Citizen Savings Scheme (SCSS): A high-interest rate savings scheme for senior citizens with a lock-in period of 5 years.
Other Tax-Saving Options
- Medical insurance premiums: Premiums paid for medical insurance for self, spouse, dependent children, and parents are eligible for deduction under Section 80D.
- Home loan repayment: The principal amount repaid on a home loan is eligible for deduction under Section 80C.
- Education loan interest: Interest paid on an education loan is eligible for deduction under Section 80E.
- Donations to charitable institutions: Donations to certain charitable institutions are eligible for deduction under Section 80G.
- Leave Travel Allowance (LTA): Exemption is provided on leave travel allowance for two journeys in a block of four years.
- Professional tax: Professional tax paid to the state government is eligible for deduction under Section 80JJAA.
Wrapping it Up
Surcharges can significantly impact your financial obligations. Understanding their different forms, particularly in the context of income tax, is crucial for informed decision-making. Remember, income tax itself is not subject to a surcharge; rather, the calculated income tax amount is what gets the additional percentage added. By understanding surcharges and actively exploring tax-saving strategies, you can navigate your financial obligations more effectively and optimize your financial well-being.
Key Takeaways
- The surcharge is an additional fee added on top of the original price, not included in the advertised price.
- Fixed amounts and percentages based on the original price are two types of surcharges.
- An income surcharge is estimated as an additional tax on calculated income tax, not gross income.
- Surcharge rates can vary depending on the category and income bracket of the individual.
- To save taxes, one should invest in a government savings plan and claim other deductions under government regulations.
