Why is Surcharge Added?
Surcharge is an additional charge on the tax payable by individuals with high income. The surcharge rates vary based on the level of income. For the financial year 2023-24, the surcharge rates are:
- 10%: For incomes between ₹50 lakh and ₹1 crore.
- 15%: For incomes between ₹1 crore and ₹2 crore.
- 25%: For incomes between ₹2 crore and ₹5 crore.
- 37%: For incomes above ₹5 crore.
In your case, since your tax payable is ₹60,45,058, it falls in the bracket where a surcharge of either 10% or 15% is applicable. Given the amount of surcharge calculated (₹9,06,759), it appears to be at a 15% rate (which applies to incomes between ₹1 crore and ₹2 crore).
Marginal Relief
Marginal relief ensures that the additional tax payable (including surcharge) on the excess of income over the threshold is not more than the excess income. This is considered to avoid excessive tax burden due to slight increments in income.
Steps to Ensure Accuracy:
- Double-Check the Income Brackets: Ensure your income falls within the correct bracket for the surcharge applied.
- Use Tax Calculators: Many online tax calculators can help verify the surcharge and marginal relief computations.
- Consult a Tax Professional: For precise calculations and compliance, consulting a tax advisor is recommended.
Action Items
- Review Schedule SI: Verify the special income and rates applied.
- Review All Entries: Make sure all entries in your ITR form are accurate, especially income and deductions.
- Submit or Seek Professional Help: If there are discrepancies or complexities, consider professional help for filing.
Surcharge Based on Total Income:
The surcharge is an additional charge on the income tax payable and is calculated based on the total income of an individual. The rates of surcharge increase with the level of income. For the financial year 2023-24, the surcharge rates for individuals are as follows:
- 10%: For total income exceeding ₹50 lakh but up to ₹1 crore.
- 15%: For total income exceeding ₹1 crore but up to ₹2 crore.
- 25%: For total income exceeding ₹2 crore but up to ₹5 crore.
- 37%: For total income exceeding ₹5 crore.
Calculation Process:
- Determine Total Income: Calculate the total income for the financial year.
- Apply Basic Tax Rates: Calculate the income tax based on the applicable slab rates.
- Calculate Surcharge: Apply the appropriate surcharge rate to the income tax based on the total income.
Example:
Let’s take an example to understand how surcharge is calculated:
- Total Income: ₹1.5 crore
- Basic Income Tax: Assume ₹30 lakh (calculated based on applicable slab rates)
Step-by-Step Calculation:
- Determine Surcharge Rate: Since the total income is ₹1.5 crore, the applicable surcharge rate is 15%.
- Calculate Surcharge:
- Surcharge = 15% of Basic Income Tax
- Surcharge = 15% of ₹30 lakh = ₹4.5 lakh
- Calculate Total Tax Liability:
- Total Tax = Basic Income Tax + Surcharge
- Total Tax = ₹30 lakh + ₹4.5 lakh = ₹34.5 lakh
- Add Health and Education Cess:
- Cess = 4% of Total Tax
- Cess = 4% of ₹34.5 lakh = ₹1.38 lakh
- Gross Tax Liability:
- Gross Tax = Total Tax + Cess
- Gross Tax = ₹34.5 lakh + ₹1.38 lakh = ₹35.88 lakh
Practical Implications in Your Case:
Based on your breakdown:
- Tax Payable on Total Income: ₹60,45,058
- Applicable Surcharge Rate: As your total income is high, likely the surcharge rate of 15% is applied.
- Surcharge Amount: ₹9,06,759 (which aligns with 15% of the basic tax payable before surcharge).
Important Points to Note:
- Marginal Relief: Ensure that marginal relief is considered if applicable. Marginal relief ensures that the additional tax due to surcharge does not exceed the amount by which income exceeds the threshold.
- Review and Verify: Always double-check calculations or use tax software for accurate computations.
Summary:
Surcharge is calculated based on the total income and is then applied to the tax payable on that income. The rates vary depending on the income brackets set by the government, ensuring higher income earners pay a higher percentage of surcharge. Always consider consulting with a tax professional for complex scenarios to ensure compliance and accuracy.