Updated : December 29, 2023What is Health and Education Cess on Income Tax ? Rate, Calculation
Overview : Understanding the Indian income tax system can be challenging, especially the surcharges. In this blog, we'll guide you through the complex world of surcharges in India, explaining their purpose, updated rates, and impact on individuals and businesses. Whether you're a seasoned taxpayer or just beginning your financial journey, this blog aims to equip you with the knowledge needed to navigate this crucial aspect of the tax realm. Let's dive in!
What is an Income Tax Surcharge ?
A surcharge on income tax is an extra tax imposed by the central government on top of the regular tax on income. It is usually applied in situations like high-income brackets or extraordinary circumstances. The purpose of a surcharge varies, often aiming to fund particular programs or address budgetary shortfalls. In income tax, a surcharge is imposed on taxpayers whose income exceeds a predetermined threshold. This mechanism enables governments to ensure that higher-earning taxpayers contribute proportionally more to public revenue. Surcharges serve as a tool for fiscal policy and enable authorities to target specific segments of the population or sectors for additional financial support.
Surcharge on Income of Individuals under the New Regime
New surcharge rates applicable to the upcoming tax regime in 2023 were announced. These changes will be implemented from April 1, 2023, and will significantly impact the tax liabilities of individuals and businesses. Knowledge of applicable surcharges is essential for filing an Income tax Return. Taxpayers must stay informed to avoid compliance issues.
| Income Range (Rs.) | Tax Rate (%) | Surcharge Rate | Health & Edu Cess | Effective Tax Rate |
|---|---|---|---|---|
| Up to 50 Lakhs | Slab based | Nil | 4% | Slab Based |
| 50 Lakhs - 1 Crore | 30% | 10% | 4% | 34.20% |
| 1 Crore - 2 Crore | 30% | 15% | 4% | 35.70% |
| Above 5 Crore | 30% | 25% | 4% | 38.70% |
Surcharge on Income of Individuals under the Old Regime
| Income Range (Rs.) | Tax Rate (%) | Surcharge Rate | Health & Edu Cess | Effective Tax Rate |
|---|---|---|---|---|
| Up to 50 Lakhs | Slab based | Nil | 4% | Slab Based |
| 50 Lakhs - 1 Crore | 30% | 10% | 4% | 34.20% |
| 1 Crore - 2 Crore | 30% | 15% | 4% | 35.70% |
| 2 Crore - 5 Crore | 30% | 25% | 4% | 38.70% |
| Above 5 Crore | 30% | 37% | 4% | 42.30% |
There are some cases where the surcharge rates mentioned above do not apply. For example, suppose someone has earned income from capital gains (either short-term or long-term) by selling equity shares and equity mutual funds or through dividend income. In that case, the surcharge will not exceed 15%, regardless of the income earned. When the surcharge on income tax payable exceeds the increase in revenue over the specified limit, the concept of marginal relief comes into play.
Surcharge on Income Tax of Domestic Companies/LLP
| Total Income | Surcharge Rate on Domestic Company or LLP | Surcharge Rate on Foreign Organisations |
|---|---|---|
| Up to Rs. 1 crore | 7% | 2% |
| Above Rs 1 crore | 12% | 5% |
Important Notes
The surcharge applies to domestic companies and Limited Liability Partnerships (LLPs), irrespective of their accounting method (cash or accrual), profit size, or industry type.
A Health and Education Cess of 4% will be added to the income tax and surcharge.
Companies and LLPs must pay Minimum Alternate Tax (MAT) at a rate of 15% on their book profits if their income tax liability falls below 15% of their book profit. MAT is subject to surcharge and cess.
The tax treatment for foreign companies may vary depending on whether they have a Permanent Establishment (PE) in India.
Specific international treaties or agreements may influence foreign companies' applicable tax rates and surcharges.
Conclusion
Navigating the Indian tax landscape can be a complex adventure, and navigating surcharge, an additional levy on high-income earners, adds another layer of challenge. But fear not! This blog summary unravels the mysteries of surcharge in FY 2023-24 and beyond, simplifying the rates, comparing the old and new regimes, and equipping you with essential knowledge to make informed financial decisions.
