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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 –

Particulars Amount
Assessee Status Individual
Income 1,00,50,000
Assessment Year 2017-18
Income tax without surcharge and EC and SHEC 28,40,000
Surcharge (15% of income tax) 4,26,000
Income tax without surcharge and EC and SHEC on Rs. 1 crore 28,25,000
Maximum amount of Surcharge
(1,00,50,000-1,00,00,000) Less (28,40,000-28,25,000)

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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