Do Education and Health Cess Included?

Yes, the Health and Education Cess at 4% is Payable on the Amount of Income Tax + Surcharge (if Any). In the Case of All Assessees, I.e., Huf, Individuals, Boi, Aop, Firms, Companies, Co-operative Societies, Artificial Juridical Persons, Local Authorities, and Firms, the Health and Education Cess is Applicable.

Can an Individual Claim Marginal Relief?

Yes, marginal relief can be claimed by any person to whom a surcharge applies.

What is the Maximum Surcharge Rate in the New Regime?

If your taxable income is more than Rs 5 crore and you opt for the new tax regime, you will have to pay a lower surcharge of 25% instead of 37% earlier.

How is the Surcharge Calculated?

The surcharge is calculated as a percentage of income tax. Cess is financially calculated on the tax plus surcharge.

NRI Income Tax & Compliance

Income Tax Surcharge & Marginal Relief for AY 2026-27

Q: Is Marginal Relief Available for Companies, Firms, and Nris?

Yes, Marginal Relief is Available for Companies and Firms. Firms and Companies Whose Total Income During the Financial Year is More Than Inr 1 Crore but Less Than Inr 10 Crore Can Apply for Marginal Relief. However, on Nris, It is Not Applicable.

May 28, 2026
9 mins
8.4K Views

The surcharge is calculated as a percentage of the taxpayer's income tax payable. Generally, high-income taxpayers are subject to the surcharge provisions under the Income Tax Act, 1961. Individual taxpayers, firms, LLPs, local authorities, and companies that cross the prescribed threshold limit are liable to pay surcharge and may claim marginal relief, wherever applicable.

In this blog, we will understand the income tax surcharge rates and marginal relief provisions applicable for AY 2026-27.

Key Takeaways

For individual taxpayers, surcharge rates are as follows:

10% for total income between ₹50 lakh and ₹1 crore
15% for total income between ₹1 crore and ₹2 crore
25% for total income between ₹2 crore and ₹5 crore
37% (Old Tax Regime only) and 25% (New Tax Regime) for total income above ₹5 crore

Note: Under the New Tax Regime (Section 115BAC), the maximum surcharge is capped at 25%.

Surcharge On Income Tax

A surcharge is an additional tax levied on the income tax amount when total income exceeds specified thresholds. It increases the overall tax liability of high-income taxpayers during a financial year.

Surcharge Rates for Individuals (Old vs New Tax Regime)

Net Taxable Income	New Tax Regime	Old Tax Regime
Up to ₹50 lakh	Nil	Nil
₹50 lakh – ₹1 crore	10%	10%
₹1 crore – ₹2 crore	15%	15%
₹2 crore – ₹5 crore	25%	25%
Above ₹5 crore	25%	37%

Clarification:

The 37% surcharge on income tax applies only under the Old Tax Regime. Under the New Tax Regime, the surcharge is capped at 25%.

AOP Clarification:

For Association of Persons (AOP), where all members are companies, a surcharge rate of 15% applies if total income exceeds ₹1 crore.

Surcharge on Capital Gains & Dividend Income

The surcharge on the following incomes is capped at 15%, even if total income exceeds ₹2 crore or ₹5 crore:

Capital gains under Section 111A
Long-term capital gains under Section 112
Long-term capital gains under Section 112A
Dividend income

Example (Corrected & Clarified)

Mr. Aman has earned the following income during FY 2025-26:

Business Income: ₹3 crore
Capital Gains under Section 112A: ₹50 lakh
Capital Gains under Section 111A: ₹75 lakh
Capital Gains under Section 112: ₹1.25 crore

Total Income = ₹5.5 crore

If the entire income were normal income under the Old Regime, surcharge would be 37%.

However:

Capital gains under Sections 111A, 112, and 112A are subject to a maximum surcharge of 15%.
Business income of ₹3 crore attracts surcharge of 25% (as total income exceeds ₹2 crore but does not exceed ₹5 crore for surcharge slab applicability on normal income portion).

Thus, surcharge is applied separately as per applicable caps.

Surcharge Rates for Companies

Domestic Company (Normal Provisions)

7% if total income exceeds ₹1 crore but does not exceed ₹10 crore
12% if total income exceeds ₹10 crore

Domestic Company opting for Section 115BAA or 115BAB

A flat surcharge of 10% applies irrespective of total income.
There is no threshold-based surcharge and no marginal relief available in such cases.

Foreign Company

2% if total income exceeds ₹1 crore but does not exceed ₹10 crore
5% if total income exceeds ₹10 crore

Surcharge Table for Companies

Net Taxable Income	Domestic	Foreign	115BAA / 115BAB
Up to ₹1 crore	Nil	Nil	10%
₹1 crore – ₹10 crore	7%	2%	10%
Above ₹10 crore	12%	5%	10%

Surcharge Rates for Firm / LLP / Local Authority

Where total income exceeds ₹1 crore, surcharge is payable @ 12% of income tax computed.

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Marginal Relief for Individuals

In case the taxpayer's income is slightly above the surcharge threshold and the extra tax payable exceeds the extra income earned, marginal relief allows the taxpayer to pay only the tax attributable to the excess income.

The following two cases will help you better understand this concept.

Case 1: Income slightly above Rs 50 lakhs

When total income exceeds Rs 50 lakhs but does not exceed Rs 1 crore, surcharge @10% applies (Old Tax Regime).

Assume that an individual has a total income of Rs 51 lakhs for the financial year 2025-26.

Tax including surcharge = Rs 14,76,750
Tax on Rs 50 lakh income = Rs 13,12,500 (excluding cess)

Extra tax payable = Rs 1,64,250
Extra income earned = Rs 1,00,000

Marginal relief = Rs 64,250

Hence, the income tax liability on income of Rs 51,00,000 will be Rs 14,12,500 (excluding cess).

Note: If the taxpayer opts for the new tax regime, surcharge on income tax slab rates remain the same but slab rates differ.

Case 2: Income slightly above Rs 1 crore (Corrected)

Where total income is more than Rs 1 crore but less than Rs 2 crore, a 15% surcharge applies.

Assume total income is Rs 1.01 crore.

Tax including surcharge = Rs 31,68,875
Tax on Rs 1 crore income = Rs 30,93,750

Extra tax payable = Rs 75,125
Extra income earned over Rs 1 crore = Rs 1,00,000

Since extra tax payable is less than extra income earned, no marginal relief applies in this scenario.

(Note: Earlier reference incorrectly mentioned income exceeding Rs 2 crore — corrected to Rs 1 crore threshold.)

Marginal Relief on Surcharge for Companies (Income > INR 1 Crore but ≤ INR 10 Crore)

The table below, according to scenario, shows the applicable marginal relief on surcharge on income tax for companies' income > INR 1 crore but ≤ 10 crore during a financial year:

Scenario	Indian Company	Foreign Company
Gross income of the company during a financial year	INR 1,05,00,000	INR 1,05,00,000
Payable income tax without surcharge	INR 31,20,000	INR 31,20,000
Surcharge rate	7%	2%
Total payable tax with surcharge (domestic)	INR 31,20,000 + 7% surcharge = INR 33,34,400	INR 31,20,000 + 2% surcharge = INR 31,84,400
Payable tax on INR 1 crore (without surcharge)	INR 31,20,000	INR 31,20,000
Additional payable tax due to higher income	INR 33,34,400 - INR 31,20,000 = INR 2,14,400	INR 31,84,400 - INR 31,20,2000 = INR 64,400
Excess income more than INR 1 crore	INR 5,00,000	INR 5,00,000
Marginal Relief	INR 2,14,400 - INR 5,00,000 = INR 0 (no marginal relief, as excess tax is less than excess income)	INR 64,400 - INR 5,00,000 = INR 0 (no marginal relief as excess tax is less than excess income)
Payable tax after marginal relief	INR 33,34,400	31,84,400

Let us understand this concept with an example

Case 1: When the total income of a domestic company exceeds Rs 1 crore but does not exceed Rs 10 crore, a surcharge of 7% applies to the income tax payable.

Similarly, for a foreign company with total income of more than Rs 1 crore but less than Rs 10 crore, a 2% surcharge applies to the income tax payable.

Marginal relief will be provided only to companies whose total income is more then Rs 1 crore but less than Rs 10 crore that is income tax payable, including the surcharge on the higher income should not exceed the income tax payable on Rs 1 crore by more than the amount of the income tax payable on Rs 1 crore by more than the amount of income that exceeds Rs 1 crore.

Case 2: When the total income for a domestic company is more than Rs 10 crore, a surcharge of 12% is applicable on the income tax payable.

Likewise, for foreign income earners with total income exceeding Rs 10 crores, a 5% surcharge will be imposed on the income tax payable.

Marginal relief will be provided only to companies whose total income exceeds Rs 10 crore; that is, the total income tax payable, including the surcharge on the higher income, does not exceed the income tax payable on Rs 10 crore by more than the amount of income that exceeds Rs 10 crore.

This is all about the marginal relief applicable to individuals. Moving ahead, let's know the marginal relief for companies.

Marginal Relief for Firms/ Local Authorities/ LLP (Income > INR 1 Crore)

The table below showcases the applicable marginal relief on surcharge on income tax for firms/ LLP/ local authorities whose income during the financial year is more than INR 1 crore:

Scenario	Details
Total income of the firm	INR 1,01,00,000
Payable income tax without surcharge	INR 31,20,000
Surcharge Rate	12%
Total payable tax with surcharge on INR 1,01,00,000	INR 32,24,000
Payable tax on INR 1 crore without surcharge	INR 31,20,000
Excess payable tax due to higher income	INR 32,24,000 - INR 31,20,000 = INR 1,04,000
Excess income above INR 1,00,00,000	INR 1,00,000
Marginal Relief	INR 1,04,000 - INR 4,000
Payable tax after marginal relief	INR 32,24,000 - INR 4,000 = INR 32,20,000

*Explanation:

Total income of the firm: INR 1,01,00,000
Payable tax on INR 1,01,00,000 (including 12% surcharge): INR 32,24,000
Payable tax on INR 1,00,00,000: INR 31,20,000 (without surcharge)
Excess Tax: The additional INR 1,00,000 leads to an extra tax of INR 1,04,000
Marginal relief: INR 4,000 is the marginal relief received by the firm. It is the difference between the excess tax and the excess income.

The above calculation states that if the firm's total income does not exceed INR 1,00,00,000, it would not be liable to pay tax on the excess amount, i.e., INR 1,00,000.

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The Bottom Line

While filing taxes, marginal relief is an important provision in the Indian income tax system that ensures fairness when surcharge applies after crossing specified income thresholds. While surcharge increases overall tax liability for high-income taxpayers, marginal relief prevents excessive tax burden when income slightly exceeds the threshold.

In a nutshell, as a taxpayer in India, understanding how surcharge slabs and marginal relief work together is essential for accurate tax planning, especially for high-income individuals, companies, firms, LLPs, and NRIs with higher taxable income.

Glossary

Fiscal Year / Financial Year: Financial Year, 12 Consecutive Months, Used for Business, Accounting, Budgeting, Etc.
Income Tax: Income Tax, a Type of Direct Tax, is Imposed by the Government on the Income of Individuals or Organisations.
Income Tax Act: Income Tax Act, an Act to Manage and Govern the Direct Taxes, by Levying, Collecting, and Administering.
Marginal Relief: Marginal Relief, Reduce Tax Burden, Encourage Fairness and Equal Taxation.
Surcharge: Surcharge, an additional charge on income tax, added if you cross the thresholds.
Foreign Company: A Complete Guide to Foreign Companies in India Covering Meaning, Types, Registration, and Compliance Requirements

Disclaimer

Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

Pankaj Shaw(Tax Expert)

Mr Shaw brings 8 years of experience in auditing and taxation. He has a deep understanding of disciplinary regulations and delivers comprehensive auditing services to businesses and individuals. From financial auditing to tax planning, risk assessment, and financial reporting. Mr Shaw's expertise is impeccable.

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Frequently Asked Questions

A Surcharge is an Additional Charge Imposed on Individuals and Entities When Their Total Income During a Financial Year is More Than Inr 50,00,000. The Surcharge is Different for Individuals, Companies and Firms/llps/and Local Authorities. Additionally, the Income Tax Surcharge Rate Also Varies According to the Income.

Marginal Relief is a Tax Provision Provided by the Income Tax to Prevent Taxpayers From Paying Additional Tax (Income Tax + Surcharge) From Earning More Than the Threshold Limit During the Fiscal Year. It Helps the Taxpayers in Reducing Their Tax Liability.

Marginal Relief is Eligible for Indian Residents Only, Whether They Are Salaried or Non-salaried Individuals. Under Section 87a of the Income Tax Act, Marginal Relief Helps Taxpayers Whose Income is More Than Inr 12,00,000 and Does Not Exceed Inr 12,75,000. By Providing Some Tax Relief, It Helps the Taxpayers Decrease Their Tax Burden.

Marginal Relief is the Difference Between the Excess Tax and the Excess Income. However, if the Excess Tax is Less Than the Excess Income, in This Scenario, Marginal Relief Will Not Be Provided to the Taxpayer. Marginal Relief = (Tax Payable on Income With Surcharge) - (Payable Income Tax + Excess Income).

Yes, Marginal Relief is Applicable in the New Tax Regime. Through This Provision, Taxpayers Whose Income is More Than the Threshold Limit Can Reduce Their Tax Burden and Pay a Fair Tax Portion on the Excess Amount.