Marginal Relief - Excess Tax due to Surcharge - The concept with illustration - Income Tax - Ready Reckoner - Income Tax

Standard Provisions read as: Where an assessee, having total income exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. An illustration: Assessee ABC Assessee DEF Assessee RST Total income A. 1,00,10,000 99,99,000 1,50,00,000 Rate of Tax 25% 25% 25% Tax Liability B. 25,02,500 24,99,750 37,50,000 Amount Retained after Tax, but before surcharge C=A-B 75,07,500 74,99,250 1,12,50,000 Rate of Surcharge 10% Nil 10% Total Surcharge payable D 2,50,250 0 3,75,000 Total Tax including Surcharge E=B+D 27,52,750 24,99,750 41,25,000 Now, after payment to Tax on total income and F=A-E Or F=C-D 72,57,250 74,99,250 1,08,75,000 As seen above, the total income of ABC is more then the total income of DEF . But, after application of surcharge, the position would be reversed and the total amount retained by DEF is more than the amount retained by ABC . But, total income of RST remains more the other two assessee always. In this case, the income of ABC is exceeding merely ₹ 10,000 over ₹ 1 crores, but its total tax liability because of surcharge increased by ₹ 2,50,250. However, in case of RST the amount of surcharge is not exceeding the amount increases over ₹ 1 crores. Therefore, ABC is eligible for marginal relief. To remove this adverse effect, the concept of Marginal Relief is in place. Accordingly, additional tax liability due to surcharge should not exceed the amount of income increased. Hence: Actual Surcharge payable, after marginal relief G 10,000 - (tax) = 7500 0 3,75,000 Total Tax liability, after Marginal Relief H 25,10,000 24,99,750 41,25,000