Income Tax Surcharge Rate & Marginal Relief for AY 2025-26

A surcharge is an extra charge imposed on individuals or entities with higher incomes on their income tax. Additionally, marginal relief helps individuals reduce their significant tax burden. Generally, this situation is faced by high-income taxpayers in India, whether Indian or non-Indian residents (NRIs).

Want to know more about income tax surcharge and marginal relief, and who they apply to? Read the blog that explains these income tax terms in detail, along with examples.

Surcharge on Income Tax

As mentioned above, a surcharge is an additional amount that individuals or entities with higher incomes must pay on their income tax. Based on the income tax brackets, a surcharge is a percentage of the income tax payable imposed on individuals or entities with higher incomes.

In 2025, for individuals whose income exceeds INR 50,00,000 in a financial year, a surcharge of 10% to 25% will be applicable, depending on their increased income. The surcharge aims to increase the tax liability of the wealthier section. After the income tax, the surcharge is calculated and increases the individual's total tax payable.

This was all about the income tax surcharge. Moving ahead, let's look at the surcharge rate under the new and old tax regimes for individuals.

Surcharge Rates for Individuals Under the Old Regime and New Regime

Here are the income tax surcharge rates on individuals under the old and new tax regimes:

These are the income tax surcharge rates on individuals under the new and old tax regimes. For both Indian residents and NRIs, the surcharge rates remain the same. Moving further, let's know its rate on capital gains.

Surcharge on Capital Gains

Capital gains and dividend income are stated under sections 111A, 112, and 112A of the Income Tax Act; a 15% surcharge applies to them.

Illustration

Suppose Mr. D is an individual living in India. During the fiscal year 2024-25, he has earned the following income in India:

• Income from business: INR 3,00,00,000
• Capital gains u/s 112A: INR 50,00,000
• Capital gains u/s 111A: INR 75,00,000
• Capital gains u/s 112: INR 1,25,00,000

Total income = INR 5,50,00,000.

Had the entire income been normal, a 37% surcharge would apply.

But capital gains under sections 111A, 112, 112A are subject to a maximum 15% surcharge, regardless of income level.

Thus:

• 15% surcharge applies on capital gains
• 25% surcharge applies on business income (income between 2–5 crore)

Surcharge Rates for Company

The table below showcases the income tax surcharge rates for the company

This was all about the surcharge rate for companies in India. Moving further, let's look at the income tax surcharge rates for foreign companies, Indian firms/ local authorities, and LLPs.

Surcharge Rates for Foreign Companies

The income tax surcharge rate for a foreign company is as follows:

Surcharge rates for Firm/ LLP/ Local Authority 

For firms, LLPs and local authorities, a 12% surcharge applies when income exceeds INR 1 crore.

These are the income tax surcharge rates for a foreign company, an Indian firm, an LLP, and local authorities. Furthermore, let's discuss marginal relief in income tax. 

Marginal Relief in Income Tax

Marginal relief is a provision introduced by the Income Tax Act, 1961, to reduce the tax burden on individuals whose income exceeds the specified tax limit, especially those whose income exceeds INR 50,00,000 in a fiscal year. Under this relief, taxpayers whose income exceeds a particular limit during a fiscal year can avoid an increase in their tax liability. The marginal relief certifies that the additional payment of tax is proportional to the increased amount of income. 

This relief primarily applies to individuals in India whose income exceeds the basic tax exemption limit and who have income exceeding INR 12,00,000 in the financial year 2025-26. With marginal tax relief, individuals are spared paying higher tax on a slight increase in income. However, this tax relief does not apply to taxpayers whose total income exceeds 12,75,000. 

This was all about marginal relief in income tax. Moving ahead, let's look at the changes proposed to this relief in the Union Budget 2025. 

Marginal Relief Changes Proposed in Union Budget 2025

The following key changes were stated in the Union Budget 2025 in the Income Tax for the financial year 2025-26:

• Income up to INR 12,00,000 is tax-exempt under the new tax regime. However, the standard deduction will apply to taxpayers with income up to INR 12,75,000.
• In the financial year 2025-26, starting from 1 April 2025, the rebate limit has been increased from INR 25,000 to INR 60,000. It makes the marginal relief available to taxpayers whose income exceeds INR 12,00,000.
• Under section 87A of the Income Tax Act, marginal relief certifies that the tax charged on income more than INR 12,00,000 during a financial year does not go above the increment amount of the maximum INR 12,75,000.
• For Indian residents whose income ranges between INR 12,00,000 to INR 12,75,000, marginal relief is beneficial, saving them from paying extra tax on a small rise in income.

These are some of the changes proposed for marginal relief in the Union Budget 2025. Moving further, let's know to whom this relief is applicable.

On Whom is Marginal Relief Applicable?

Marginal relief applies to the following:

• It is only available for Indian residents.
• Both salaried and non-salaried taxpayers can benefit from this relief.
• Applicable on income taxable between INR 12,00,000 and INR 12,75,000.

Based on the above information, marginal relief is available only to Indian residents with a certain taxable income. It is not available for NRIs and Hindu Undivided Families (HUFs). Also, not applicable to the taxable income more than INR 12,75,000. Considering this, on that increased income, taxes at the regular rate will be charged.

This is all about who marginal relief applies to. Moving ahead, let's now the about this relief for individuals.

Marginal Relief for Individuals

As mentioned above, marginal relief is provided to individuals to avoid paying extra tax on income due to a slight increase in it. As for increased revenue, tax officials impose a surcharge on earnings above the threshold limit during a financial year. Through this relief, you only pay the tax on the difference amount, not more than what you earned. Confused? Let us better understand this through some illustrations.

Case 1

If the total income is more than INR 50,00,000 but less than INR 1 crore. In this scenario, that person is liable to pay a 10% surcharge on his calculated income tax. However, as per income tax provisions, certain taxpayers in India will be provided with marginal relief up to the difference between the extra tax payable (surcharge included) and the excess amount over INR 50,00,000.

Now, suppose Mr. A is a taxpayer who has INR 51,00,000 during the financial year 2024-25. From the information mentioned above, calculate the marginal relief available for him.

• Mr. A is liable to pay a 10% surcharge on this total taxable income, i.e., INR 14,76,750.
• However, if he had earned only INR 50,00,000 instead of INR 51,00,000, his tax liability would be INR 13,12,500, excluding cess.

Here, for just an INR 1,00,000 increase in his income, Mr. A is liable to pay an extra tax of INR 1,64,250.

However, he can avoid so and pay the difference amount through marginal relief, i.e., INR 14,76,740 - INR 13,12,500 = INR 1,64,250, and the exceeding income is INR 51,00,000 - INR 50,00,000 = INR 1,00,000. The marginal relief Mr. A will get is INR 64,250 (INR 1,64,250 - INR 1,00,000). Additionally, his income tax liability will be INR 14,12,500, excluding cess on income of INR 51,00,000, during a financial year.

Case 2

If the taxpayer's total income is more than INR 1 crore but less than INR 2 crore in a financial year. In this scenario, a 15% surcharge will be imposed on the taxable income. Additionally, in the difference amount, i.e., between the excess payable tax (including surcharge) on income more than INR 1 crore, minus the exceeding amount more than INR 1 crore. Let's understand this with an example.

Illustration: Suppose Mr. E is a taxpayer. His total income in any financial year is INR 1,01,00,000. Based on the above information, he is liable to pay a 15% surcharge on his taxable income, i.e., the total tax payable is INR 32,68,875. However, if he had earned only INR 1 crore instead of INR 1,01,00,000, his taxable income would be INR 30,93,750.

Here, for earning just INR 1,00,000 extra, he had to pay INR 1,75,125. He can avoid paying this much amount and only pay the difference through marginal relief, i.e., the excess tax payable on the higher income, i.e., INR 1,75,125 - the amount he earned extra, i.e., INR 1,00,000. Based on the calculation, the marginal relief Mr. E receives is INR 75,125. Therefore, the tax liability of Mr. E on income INR 1 crore will be INR 31,93,750. 

*Note: In both the above-mentioned cases, if tax is paid according to the new tax regime, the surcharge rate will remain the same; however, the income tax slab rate can be changed as per the tax regime.

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

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 for companies' income > INR 1 crore but ≤ 10 crore during a financial year:

Indian Company Example

• Income = INR 1,05,00,000
• Tax without surcharge = 31,20,000
• Surcharge 7% = 2,18,400
• Total tax = 33,38,400

Extra tax = 33,38,400 – 31,20,000 = 2,18,400
Excess income = 5,00,000

Since extra tax < excess income → No marginal relief

Foreign Company Example

• Income = INR 1,05,00,000
• Tax = 31,20,000
• Surcharge 2% = 62,400
• Total tax = 31,82,400

Extra tax = 31,82,400 – 31,20,000 = 62,400
Excess income = 5,00,000 → No marginal relief

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

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

*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.

Final Thought

To obtain additional funds, the government of India imposed taxes on high-income individuals and corporations, such as an income tax surcharge. However, to provide them with some relief, we also introduced provisions such as marginal relief. Here, the blog covered the income tax surcharge and marginal relief. Hope you gain some understanding after reading it.

With this in mind, when we talk about taxes, we all look for tax-saving options. The Income Tax Act has introduced several provisions to reduce taxpayers' tax liability. Want to know about them? Contact SaveTaxs, and our experts will inform you of all applicable tax provisions based on your situation. Through this, you will be able to maximize your tax refund and avoid paying higher taxes. Connect with us today to get these tax benefits.