Marginal Relief – Surcharge on Income Tax

Assessees are allowed marginal relief in surcharge on income tax to mitigate the effect of additional tax burden which is over and above the actual marginal addition in the income, where surcharge gets attracted/ surcharge rate gets increased.

Marginal Relief – Surcharge on Income Tax

Surcharge is actually an additional tax levied on the amount of income tax based on level(s) of taxable income of the assessee. Increase in income from a level where surcharge is not applicable to a level where surcharge is applicable, may increase the total tax liability even more than the increase in taxable income due to application of surcharge, i.e. the additional tax for reaching of income to another level. Therefore, assessees are allowed this relief.

Thus the concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 1 crore or Rs. 10 crore, as the case may be.

A. For Non-companies

Marginal relief is allowed to provide relaxation from application of surcharge to Individuals, HUFs, Firms, etc. taxpayers where the total income exceeds marginally above Rs. 1 crore. Thus, while computing surcharge, in case of Individuals, HUFs, Firms, etc. having total income marginally above Rs. 1 crore, the marginal relief sin surcharge hall be available in such a manner that the net incremental / marginal amount payable as ‘income-tax plus surcharge’ shall not exceed the net incremental / marginal amount of ‘total income’ that exceeds Rs. 1 crore. So in all such cases, we need to compare the addition of tax liability including surcharge from income level of Rs. 1 crore to income level above Rs. 1 crore vis-a-vis the increase in income from income level of Rs. 1 crore to income level above Rs. 1 crore.

In all such cases, where net incremental / marginal amount payable as ‘income-tax plus surcharge’ exceeds the net incremental / marginal amount of ‘total income’ above Rs. 1 crore, such excess amount of additional tax burden shall be allowed as marginal relief in surcharge, i.e. the amount of surcharge shall be reduced to the extent of excess of increase in total liability of tax over increase in total income above Rs. 1 crore.

B. For Companies

For AY 2016-17, in the case of a companies, surcharge is levied @ 7% / 2% (domestic / foreign) if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% / 5% (domestic / foreign) if total income exceeds Rs. 10 crore in respect of AY 2016-17. For AY 2015-16, rate of surcharge for domestic companies is 5% and 10% for income brackets of more than 1 crore but less than 10 crores and above 10 crores, respectively.

Hence, in the case of companies whose total income marginally exceeds Rs. 1 crore, the marginal relief in surcharge will be computed as discussed above for non-companies cases, but in the case of companies whose total income marginally exceeds Rs. 10 crore, the marginal relief in surcharge is available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax and surcharge on total income of Rs. 10 crore, by more than the amount of income that exceeds Rs. 10 crore.

Leave a Reply