The recent Budget brought various amendments to the personal income tax, especially for the new tax regime. One of the important changes was reducing the maximum surcharge rate for individuals with high incomes.
What is a surcharge?
Do you fall under one of the highest income tax brackets? If yes, you might be paying an additional amount over your tax liability.
This additional amount is called a surcharge. A surcharge on income tax is payable if a taxpayer’s taxable income exceeds a specified threshold limit during the particular financial year. Surcharge is basically charged to bring down the rich and poor divide.
Earlier, the surcharge was only applicable to corporates. Budget 2013 onwards, it is applicable to individuals as well. With time, the surcharge rate has been revised.
Budget announcement:
The maximum surcharge is reduced to 25% from the earlier 37% under the new tax regime FY 2023-24 onwards.
What does it mean?
Due to this reduction, the maximum marginal rate has also been reduced to 39% from 42.74%.
The table below shows the surcharge rate before and after the Budget.
Let’s try to understand with an example.
Example: Mr. Bhola is a resident, aged 42 years. His income details for FY 23-24 are as follows:
(i) Income from salary ₹5 cr
(ii) Income from other sources ₹1 cr
He is eligible for a deduction u/s 80C of ₹1.5 lakhs.
Solution:
So, from the above table, we can observe that even after claiming deductions under the old regime, the tax liability under the new tax regime is lower by ₹23,03,262 and this major difference can be attributed to the reduced surcharge rates under the new tax regime.
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