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Surcharge is an additional tax levied on the income tax payable by individuals, HUFs, firms, and companies whose total income exceeds specified thresholds. It is computed as a percentage of the base income-tax amount -- a tax on tax, not a tax on income directly.
Statutory Basis
Surcharge on individuals is levied under the annual Finance Act. The rates and thresholds are specified in Part II of the First Schedule to each Finance Act. There is no permanent surcharge section in the Income Tax Act, 1961 -- it is freshly levied each year by the Finance Act. For FY 2025-26, the applicable Finance Act is Finance Act 2025.
Source: Part II, First Schedule, Finance Act 2025; incometax.gov.in.
Surcharge Slabs for Individuals (FY 2025-26)
| Total taxable income | Surcharge rate (normal income) | Surcharge on Section 111A / 112A gains |
|---|---|---|
| Up to Rs 50 lakh | Nil | Nil |
| Rs 50 lakh to Rs 1 crore | 10% | 10% |
| Rs 1 crore to Rs 2 crore | 15% | 15% |
| Rs 2 crore to Rs 5 crore | 25% | 15% (capped) |
| Above Rs 5 crore | 37% (old regime) / 25% (new regime) | 15% (capped) |
Source: Finance Act 2022 (Section 111A/112A surcharge cap); Finance Act 2023 (new regime 25% cap).
The Section 111A / 112A Surcharge Cap (Finance Act 2022)
Finance Act 2022 inserted a proviso capping surcharge at 15% on income chargeable under Section 111A (STCG on equity at 20%) and Section 112A (LTCG on equity at 12.5%). This cap applies regardless of total income -- even if total income exceeds Rs 5 crore, the surcharge on Sections 111A/112A gains does not exceed 15%.
Practical effect: a high-income investor with Rs 10 crore total income including Rs 5 crore of equity LTCG pays surcharge of only 15% (not 37%/25%) on the equity LTCG portion.
Source: Section 112A proviso; Section 111A proviso; Finance Act 2022.
Marginal Relief
Where total income marginally exceeds a surcharge threshold, marginal relief ensures the additional tax (surcharge on the excess) does not exceed the actual amount by which income crosses the threshold. This prevents a situation where earning Re 1 more results in a tax increase larger than Re 1. Marginal relief applies at each surcharge threshold (Rs 50 lakh, Rs 1 crore, Rs 2 crore, Rs 5 crore).
Source: Income Tax Act 1961, marginal relief provisions in annual Finance Acts.
Cess: In Addition to Surcharge
In addition to surcharge, all taxpayers pay Health and Education Cess at 4% of (income tax + surcharge). Effective total tax rate on equity LTCG at the highest surcharge tier: 12.5% x (1 + 0.15) x (1 + 0.04) = 14.95%. On equity STCG: 20% x 1.15 x 1.04 = 23.92%.
Source: Section 2(12C), Finance Act 2018 (cess unification).
Surcharge Under the New Tax Regime (Section 115BAC)
Under the new default tax regime (Section 115BAC, applicable from FY 2023-24 by default), the maximum surcharge on all income including business income is capped at 25% (for income above Rs 5 crore) -- the 37% tier does not apply under the new regime. The 15% cap on Sections 111A/112A gains applies identically under both old and new regimes.
Source: Section 115BAC, Income Tax Act 1961; Finance Act 2023.
Related terms: LTCG, STCG, Indexation Benefit, Tax on Investments in India, Capital Gains Tax on Stocks.