Highest surcharge on income cut to 25% from 37%.

In the Budget 2023-24, the government has reduced the highest surcharge on personal income tax to 25% from the previous 37%. The reduced rate is applicable only on taxpayers who opt for the new tax regime. As a result, the tax rate on the highest income slab will come down to 42.744% from the current to 39% including the surcharge.

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“My fourth announcement in personal income tax is regarding the highest tax rate which, in our country, is 42.74 per cent. This is among the highest in the world. I propose to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This would result in reduction of the maximum tax rate to 39 per cent,” finance minister Nirmala Sitharaman said in her Budget 2023 speech.

The move is expected to help people who earn more than Rs 5 crore of income in a year, say experts. In fact, someone earning Rs 5.5 crore will save around Rs 20.75 lakh because of the change in slab rates and cut in surcharge, they add.

What is surcharge?

Surcharge is a tax you have to pay over and above the basic tax. In short, a tax on tax, surcharge is a direct tax levied to meet the revenue needs arising from natural calamities. In India, surcharge has been introduced, removed and then reintroduced with different thresholds in various Budgets to meet these requirements. It has, however, been permanent since 2013. Note that the surcharge is not the same as health and education cess on income tax. A taxpayer has to pay 4% on the amount of tax as the health and education cess, plus the surcharge.

The surcharge rate varies from income to income. The surcharge is levied on the total income tax of the individual and not on the income of the individual.

Rate of surcharge on income tax after Budget 2023-24

Taxable Income	Surcharge
Above Rs 50 lakh and up to Rs 1 crore	10%
Above Rs 1 crore and up to Rs 2 crore	15%
Above Rs 2 crore	25%

*Applicable on Individuals, HUF, BOI, AOP and Artificial Judicial Persons only

Income tax surcharge before Budget 2023-24

Taxable Income	Surcharge
Above Rs 50 lakh and up to Rs 1 crore	10%
Above Rs 1 crore and up to Rs 2 crore	15%
Above Rs 2 crore and up to Rs 5 crore	25%
Above Rs 5 crore	37%

*Applicable on Individuals, HUF, BOI, AOP, and Artificial Judicial Persons only

Before the change announced in the Budget 2023-24, there were 4 different surcharge rates; this has now been brought down to 3.

“It is proposed that for those individuals, HUF, AOP (other than co-operative), BOI and AJP under the new regime, (the) surcharge would be same except that the surcharge rate of 37 per cent will not apply. (The) Highest surcharge shall be 25 per cent for income above Rs 2 crore. This would reduce the maximum rate from about 42.7 per cent to about 39 per cent,” the Budget Speech annexure elaborates.

Income tax slab for AY 2023-24 under new tax regime

Income	Tax rate
Up to Rs 3 lakh	NIL
From Rs 3 lakh to Rs 6 lakh	5%
From Rs 6 lakh to Rs 9 lakh	10%
From Rs 9 lakh to Rs 12 lakh	15%
From Rs 12 lakh to Rs 15 lakh	20%
Above Rs 15 lakh	30%

FAQs

What is surcharge on income tax?

A surcharge on income tax is an extra tax to be paid on your income tax. This additional tax is paid by those whose income is higher than a certain limit specified by the government.

Do all taxpayers in India have to pay surcharge on income tax?

No. In India, a surcharge is levied on the income tax if the annual income is more than Rs 50 lakh for individuals and Rs 1 crore for companies.

Where does the revenue generated from surcharge go?

The revenue generated from income tax surcharge goes directly to the central government.

What is marginal relief?

According to the Income-tax Act, 1961, a marginal relief is given to taxpayers whose taxable income is beyond the threshold limit after which surcharge is payable, but their net income above the threshold is less than the surcharge.