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A surcharge — or additional charge — is essentially a tax levied on a tax. It is calculated on payable tax, not on income generated. So a surcharge of, say, 10 per cent on an existing tax rate of 30 per cent effectively raises the total tax rate to 33%. For example, if a tax is imposed at 30 per cent on an income of Rs 100, the total payable tax would be Rs 30. Then, a surcharge of 10 per cent calculated on Rs 30 would amount to Rs 3. So, the effective payability would be Rs 30 + Rs 3 = Rs 33.
Union Budget 2019, while keeping surcharge unchanged for some high-income groups, raised it for ultra-high-networth individuals. For those with an annual income in the range of Rs 50 lakh to Rs 1 crore, the surcharge of 10 per cent was kept unchanged from the previous year. Similarly, those earning Rs 1 crore to Rs 2 crore yearly also had to pay the same surcharge as the previous year; ie, 15 per cent. An increase in surcharge, however, was announced for the following income groups:
  • A surcharge of 25 per cent is now charged for those with annual income between Rs 2 crore and Rs 5 crore for FY20.
  • A surcharge of 37 per cent is charged on annual income in excess of Rs 5 crore for FY20.
The earlier surcharge on income-tax, capped at 15 per cent, is applicable for the current assessment year 2019-20. The new rates are applicable on income earned in FY20; ie AY 2020-21. As a result of the increase in surcharge, the effective tax rate for individuals in the Rs 2 crore to Rs 5 crore per year income bracket will be 39 per cent for FY20. Similarly, the effective tax rate for individuals earning Rs 5 crore or more will be 42.7 per cent for FY20.
Earlier, a surcharge of 10 per cent was levied on individuals whose total income exceeded Rs 1 crore. This rate was hiked to 12 per cent in Union Budget 2015, and further to 15 per cent in the Union Budget 2016. The 2017 Budget imposed a surcharge on those with income above Rs 50 lakh. Companies with income above Rs 1 crore were also made liable to pay surcharge.