income tax

Understanding Income Tax Surcharge: New vs. Old Tax Regime Explained

Understanding Surcharge on Income Tax: New vs. Old Tax Regime

A surcharge is an additional charge applied to the income tax amount when an individual or entity's income surpasses specific thresholds. This surcharge affects individuals, Hindu Undivided Families (HUFs), firms, companies, and other entities based on their income level.

1. Surcharge under Section 115BAC (New Tax Regime)

Under the New Tax Regime, the surcharge is applicable when total income exceeds ₹50 lakh. The rates are structured as follows:

Total IncomeSurcharge Rate
> ₹50 lakh ≤ ₹1 crore10%
> ₹1 crore ≤ ₹2 crore15%
> ₹2 croreRefer to Case I & II below

Note: This includes income by way of dividends or specified capital gains, as defined under Section 111A, Section 112, and Section 112A of the Income Tax Act.

Cases for Total Income Exceeding ₹2 Crore

For individuals with a total income exceeding ₹2 crore, the rates are:

  • Case I: Total Income > ₹2 Crore (excluding income from dividends or specified capital gains) - Surcharge Rate: 25%

  • Case II: Total Income > ₹2 Crore (including income from dividends or specified capital gains) - Surcharge Rate: 15%

Important Note: Under Section 115BAC(1A), if your total income includes dividends or certain capital gains, the surcharge on the tax for that portion of income will not exceed 15%. The maximum surcharge rate in the New Tax Regime is capped at 25%, unlike the Old Tax Regime, which allows rates up to 37%. Furthermore, in cases where an association of persons consists solely of companies and its income is taxable under the New Tax Regime (Section 115BAC(1A)), the surcharge shall not exceed 15%.

2. Surcharge under the Old Tax Regime

The surcharge rates for the Old Tax Regime are as follows:

Total IncomeSurcharge Rate
> ₹50 lakh ≤ ₹1 crore10%
> ₹1 crore ≤ ₹2 crore15%
> ₹2 crore ≤ ₹5 crore25%
Above ₹5 crore37%

Note: The 37% surcharge is only applicable under the Old Tax Regime and not under the New Tax Regime.

Additional Considerations

  • The surcharge is applied solely on the income tax amount, rather than the total income.
  • Marginal relief is available to mitigate any excessive tax burden resulting from a slight increase in income.
  • In both regimes, a Health & Education Cess of 4% is levied on the total tax (inclusive of the surcharge).
  • The rates discussed apply to the Assessment Year 2025-26 and onwards.