Understanding Marginal Relief and Surcharge in Income Tax: Calculation and Examples, Exams of Law

Download Understanding Marginal Relief and Surcharge in Income Tax: Calculation and Examples and more Exams Law in PDF only on Docsity! Concept of Marginal Relief & Surcharge • Surcharge is an additional tax levied on the amount of income-tax. In case of individuals/HUF/AOP/BOI/artificial juridical person, surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 50 lakh but doesn’t exceeds Rs. 1 crore. • Tax on 50 lacs = 13,12,500 • Tax on 51 lacs =13,42,500 • Income>50,00,000 = 10% surcharge • 10% on 13,42,500 + 13,42,500= 14,76,750 • (T+S) on 51 lacs – T(50 las)= 14,76,750 – 13,12,500 =1,64,250 • Income increased by 1 lacs , liability= 1,64,250 i. if. iil. iv. marginal relief is available from surcharge in following manner- in case where net income exceeds Rs. 50 lakh but doesn't exceed Rs. 1 Crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of Rs 50 Lakh by more than the amount of income that exceeds Rs 50 Lakhs. in case where net income exceeds Rs. | crore but doesn't exceed Rs. 2 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total mcome of Rs. | crore by more than the amount of income that exceeds Rs. | crore. in case where net income exceeds Rs. 2 crore but doesn't exceed Rs. 5 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2 crore. in case where net income exceeds Rs. 5 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 5 crore by more than the amount of income that exceeds Rs. 5 crore. Net Taxable Income 50,00,000 50,00,001 Relief u/s 87A Income Tax 13,12,500 13,12,500 Surcharge(without marginal relief) 1 1,31,250 Income Tax + Surcharge 13,12,500 14,43,750 Health and Education Cess @ 4% 52500 57,750 Total Tax Liability 13,65,000 15,01,500 Liability on taxpayer earning total income of 51 lacs • Tax on 50 lacs = 13,12,500 • [(Tax + Surcharge) on 51 lacs – Tax on 50 lacs] – Marginal relief = 1lacs • [14,76,750 – 13,12,500] – MR =1 lacs • MR = 1,64,250 – 1 lacs= 64,250 • 14,76,750 – MR[64,250] = 14,12,500 -> after adjusting the marginal relief • 4% Health and Education Cess [14,12,500] = 56,500 • Total outgo[liability] = 14,12,500+56,500 = 14,69,000 Example • Income is Rs. 51 lakh • Tax as per A.Y. 2020-21 = 13,42,500 • Surcharge @ 10% on tax =1,34,250 • (A)Total tax Payable before Cess= 13,42,500+1,34,250=14,76,750 • Income =50 lakh • (B)Tax on 50 lakh= 13,12,500 • A-B= 1,64,250 which exceeds Rs. 1 lakh [51-50],:. Marginal Relief Tax on 51 lakh after taking into account marginal relief • Tax on 51 Lakh = 13,42,500 • Surcharge = x • Tax on 50 lakh = 13,12,500 • Income that exceeds 50 lakh= 1lakh • 13,42,500+Surcharge-13,12,500=1 lacs • 30,000+Surcharge=1 Lacs • Surcharge(under marginal Relief)=1 lacs-30,000 =70,000 Discussion during the Lecture • [T1(Tax on 50lacs+1) + S (Marginal Relief)] – [T2(Tax on 50 lacs)] = 1 • 13,12,500 + SM – 13,12,500 = 1 • SM = 1 Discussion during the Lecture • Tax on Rs. 51 Lacs = 13,42,500 • Surcharge @10 % = 1,34,250 • Tax + Surcharge = 13,42,500+1,34,250 = 14,76,750 • [(Tax+Surcharge) on 51 lac] > (Tax on 50 lacs) by income exceeding Rs Border case • [(14,76,750 – 13,12,500)=1,64,250 > 1 lacs • (T1 + SM)- T2(Tax on 50 lacs) = 1 lacs • 13,42,500 + SM – 13,12,500 = 1 lacs • 30,000 +SM = 1lacs • SM= 1lacs -30,000 = 70,000 • Marginal Relief = 1,34,250 – 70,000= 64,250 Discussion during the Lecture on 13th August • The individual will get a marginal relief of the difference amount between the excess tax payable on higher income i.e (Rs.14,76, 750 minus Rs.13,12,500 = Rs.1,64,250 ) and the amount of income that exceeds Rs. 50 Lakhs i.e. (Rs.51,00,000 minus Rs.50,00,000 = Rs.1,00,000). • The marginal relief will be Rs.64,250 (Rs.1,64,250 minus Rs.1,00,000).