Ever felt the pain of paying higher taxes due to a little increase in income that tax payable on such increased income is more than the extra income itself?
Well, this happens when your income increases a little and surcharge gets attracted. The Indian Income Taxation system is based on progressive concept, which means higher the income, higher the taxes, leading to the rich contributing more to the taxes than the poor.
Surcharge is an additional tax levied on all taxpayers having income exceeding the certain specified limits. Other than Domestic Companies opting for Section 115BAA and Section 115BAB where in any case Surcharge is applicable. The limits and rates of Surcharge specified for Individuals are as under:
*In the budget 2023, it was announced that Surcharge at the reduced rate of 25% will be applicable on income exceeding ₹5 Crore if the individual opts for the New Regime.
What is Marginal Relief?
Marginal Relief is a concept to provide relief to taxpayers when their income increases a little that Surcharge is payable at a higher rate, such that, the extra tax payable is more than the extra income earned.
Who can claim Marginal Relief?
Any person whether Individual, Hindu Undivided Family, Association of Person, Body of Individuals, Artificial Juridical Person, Partnership Firm including Limited Liability Partnership, Local Authority, Domestic Companies other than companies opting for Section 115BAA or Section 115BAB and Foreign Companies can claim the benefit of Marginal Relief.
What is the amount of Marginal Relief that can be claimed?
Marginal Relief = Calculated Surcharge - 70% (Income- ₹50 lakhs*)
*Instead of ₹50 lakhs, ₹1 Crore, ₹2 Crore, ₹5 Crore or ₹10 Crore shall be taken as per the increase in income and the applicable surcharge limit.
Let’s understand better with the help of an example.
An individual earned a net taxable income of ₹51,50,000 during the FY 2021-22. Calculate tax liability.
Solution: Calculation of Tax liability as per the Old Tax Regime:
*Calculation of Marginal Relief= ₹1,35,750- 70% (₹51,50,000- ₹50,00,000)= ₹30,750
Have questions? Ask them out!!