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.

Concept of marginal relief

• (^) The concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 50 lakh, Rs. 1 crore, Rs. 2 crore, Rs. 5 crore or Rs. 10 crore

• Income>50,00,000 = 10% surcharge

• • Tax on 50 lacs = 13,12,
• • Tax on 51 lacs =13,42,
• • 10% on 13,42,500 + 13,42,500= 14,76,
• • (T+S) on 51 lacs – T(50 las)= 14,76,750 – 13,12,500 =1,64,
• • Income increased by 1 lacs , liability= 1,64,

Net Taxable Income 50,00,000 50,00, Relief u/s 87A Income Tax 13,12,500 13,12, Surcharge(without marginal relief) 1 1,31, Income Tax + Surcharge 13,12,500 14,43, Health and Education Cess @ 4% 52500 57, Total Tax Liability 13,65,000 15,01,

Surcharge with Marginal Relief

Liability on taxpayer earning total

income of 51 lacs

• (^) Tax on 50 lacs = 13,12,
• (^) [(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,
• (^) 14,76,750 – MR[64,250] = 14,12,500 -> after adjusting the marginal relief
• (^) 4% Health and Education Cess [14,12,500] = 56,
• (^) Total outgo[liability] = 14,12,500+56,500 = 14,69,

Example

• (^) Income is Rs. 51 lakh
• (^) Tax as per A.Y. 2020-21 = 13,42,
• (^) Surcharge @ 10% on tax =1,34,
• (^) (A)Total tax Payable before Cess= 13,42,500+1,34,250=14,76,
• (^) Income =50 lakh
• (^) (B)Tax on 50 lakh= 13,12,
• (^) A-B= 1,64,250 which exceeds Rs. 1 lakh [51-50],:. Marginal Relief

• (^) So, Marginal Relief will =Surcharge (Previous Case) –Surcharge(New Case)
• (^) Marginal Relief = 1,34,250-70,000 = 64,

Discussion during the Lecture

• (^) Tax on Rs. 51 Lacs = 13,42,
• (^) Surcharge @10 % = 1,34,
• (^) Tax + Surcharge = 13,42,500+1,34,250 = 14,76,
• (^) [(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,
• (^) Marginal Relief = 1,34,250 – 70,000= 64,

Discussion during the Lecture on

th

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).