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Marginal Relief on Surcharge

Surcharge is applicable on income tax if the income exceeds the specified limit. So, a minor increase in income may exceed the specified limit and increase the tax liability to a great extent.

Marginal relief is available to the assessee if the amount of income tax and surcharge exceeds income tax payable on specified limit plus amount of income over the specified limit. The concept of marginal relief is that the amount of increase in income tax should not be more than the amount of increase in income.

Marginal relief is available in respect of surcharge only. It is not applicable in case of education cess and Senior and higher education cess.

Example –

ParticularsAmountAssessee StatusIndividualIncome1,00,50,000Assessment Year2017-18Income tax without surcharge and EC and SHEC28,40,000Surcharge (15% of income tax)4,26,000Income tax without surcharge and EC and SHEC on Rs. 1 crore28,25,000Maximum amount of Surcharge (1,00,50,000-1,00,00,000) Less (28,40,000-28,25,000)35,000

In this example the specified limit is Rs. 1 crore for applicability of surcharge. When the amount is increased by Rs. 50,000 the amount of surcharge comes to Rs. 4,26,000. Therefore the amount of surcharge is limited to Rs. 35,000 and rest Rs. 3,91,000 is allowed as marginal relief.

Amount of surcharge is Rs. 35,000 only as Rs. 15,000 is already increased on account of 30% income tax rate.

So Amount of tax payable

Income Tax – 28,40,000 Surcharge – 35,000 Education Cess – 57,500 Higher Education Cess – 28,750 Total – Rs. 29,61,250

Source: Income Tax Department Guide

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