The income tax surcharge in India is an extra amount added to your income tax bill once your total income crosses a set threshold, and for Assessment Year 2026-27 it ranges from 2% to 37% depending on who you are and how much you earn. For individuals and Hindu Undivided Families, the surcharge starts at ₹50 lakh of total income. For most companies, partnership firms, and co-operative societies, it starts at ₹1 crore. A 4% Health and Education Cess is then applied on the combined income tax plus surcharge, so the surcharge often adds meaningfully to what you finally pay.
Surcharge Slabs for Individuals and HUFs
Individual taxpayers and HUFs face a tiered structure. Each rate is charged on the income tax itself, not on your income:
- Up to ₹50 lakh: no surcharge
- ₹50 lakh to ₹1 crore: 10% of income tax
- ₹1 crore to ₹2 crore: 15%
- ₹2 crore to ₹5 crore: 25%
- Above ₹5 crore: 37% under the Old Tax Regime, 25% under the New Tax Regime
The top bracket is where the two regimes split. Under the Old Tax Regime, income above ₹5 crore attracts a 37% surcharge, pushing the effective marginal rate on that slab to roughly 42.74%. Under the New Tax Regime governed by Section 115BAC, the same earner pays 25%, and the effective marginal rate falls to about 39%.1Income Tax Department. Salaried Individuals for AY 2026-27
Non-resident individuals follow the same slabs and rates as residents. Both the 25% cap under the New Tax Regime and the 37% top rate under the Old Tax Regime apply regardless of residential status.2Income Tax Department. Non-Resident Individual for AY 2026-27
The 15% Cap on Capital Gains and Dividends
Short-term capital gains on listed equity (Section 111A), long-term capital gains on listed equity (Section 112A), and dividend income are treated separately. The surcharge on tax attributable to these categories is capped at 15%, no matter how high your total income goes.3Income Tax Department. First Schedule
In practice, the return splits your income into two buckets when applying surcharge: capital gains and dividends in one bucket, capped at 15%; everything else in the other, subject to the full tiered rates. Someone with ₹6 crore of salary and ₹2 crore of long-term listed equity gains pays 37% (or 25% under the New Regime) surcharge only on the tax attributable to the salary, while the equity gains portion faces no more than 15%.
Surcharge for AOPs, BOIs, Trusts, and Artificial Juridical Persons
Associations of Persons, Bodies of Individuals, trusts, and artificial juridical persons use the same slabs as individuals and HUFs, running from 10% at ₹50 lakh up to 25% or 37% above ₹5 crore depending on regime. The 15% cap on surcharge for capital gains under Sections 111A, 112, and 112A, and for dividend income, applies to these entities as well.4Income Tax Department. AOP / BOI / Trust / AJP for AY 2026-27
One exception matters for corporate joint ventures. When an AOP is made up entirely of companies, the surcharge is capped at 15% regardless of income. This rule has been in place since AY 2023-24.4Income Tax Department. AOP / BOI / Trust / AJP for AY 2026-27
Surcharge for Companies
Domestic Companies
Domestic companies under the standard tax structure face two tiers. Income between ₹1 crore and ₹10 crore attracts a 7% surcharge on tax, and income above ₹10 crore attracts 12%.5Income Tax Department. Domestic Company for AY 2026-27
Companies that have opted for the concessional rates under Section 115BAA (22% base rate, most exemptions forgone) or Section 115BAB (15% base rate for new manufacturing companies) pay a flat 10% surcharge, whatever the income level. Under Section 115BAA, the combined effective rate works out to about 25.17% after surcharge and cess.
Foreign Companies
Foreign companies pay a lower surcharge because their base tax rate is already higher than the domestic rate:
- Income above ₹1 crore up to ₹10 crore: 2% of income tax
- Income above ₹10 crore: 5% of income tax
These rates balance the overall burden so that a higher base rate is not compounded by a heavy surcharge.6Income Tax Department. Foreign Company
Partnership Firms, LLPs, and Co-operative Societies
Partnership firms and Limited Liability Partnerships have the simplest structure of any entity type. A flat 12% surcharge applies if total income exceeds ₹1 crore, with no intermediate tiers. Income of ₹95 lakh means no surcharge; income of ₹1.01 crore triggers the full 12%.7Income Tax Department. Partnership Firm / LLP for AY 2026-27
Co-operative societies follow two tiers aligned with domestic companies: 7% between ₹1 crore and ₹10 crore, and 12% above ₹10 crore. The 7% rate for the lower tier was reduced from 12% as part of an effort to level the playing field with corporate structures.8Press Information Bureau. Taxes on Cooperative Societies Co-operative societies that opt for the concessional rates under Section 115BAD or Section 115BAE pay a flat 10% surcharge instead.9Income Tax Department. Finance Act – Surcharge Provisions for Co-operative Societies
Health and Education Cess on Top
After you calculate income tax and surcharge, add a 4% Health and Education Cess on the combined figure. The formula is: cess = 4% of (income tax + surcharge). If your income tax is ₹10 lakh and your surcharge is ₹1.5 lakh, the cess comes to ₹46,000, and total liability is ₹11,96,000.4Income Tax Department. AOP / BOI / Trust / AJP for AY 2026-27
Cess applies to every taxpayer category and both regimes. Unlike surcharge, it has no income threshold; even taxpayers below the surcharge slabs pay 4% cess on their income tax.
Marginal Relief When You Just Cross a Threshold
Marginal relief prevents a perverse outcome: earning ₹1 more than a surcharge threshold should not leave you worse off than someone who earned just below it. Without relief, crossing ₹50 lakh by a small margin could result in additional tax that exceeds the additional income.5Income Tax Department. Domestic Company for AY 2026-27
The calculation compares two figures: the total tax including surcharge on your actual income, and the tax on the threshold amount (without surcharge) plus the extra income earned above it. If the first is larger, the difference is your marginal relief, deducted from the surcharge.
Take an individual earning ₹51 lakh under the Old Tax Regime. Tax on ₹51 lakh is ₹13,42,500; adding 10% surcharge brings it to ₹14,76,750. Tax on ₹50 lakh without surcharge is ₹13,12,500. The surcharge component is ₹1,64,250, but the extra income above the threshold is only ₹1,00,000. Marginal relief of ₹64,250 ensures the additional tax does not exceed the additional income, and the adjusted liability before cess becomes ₹14,12,500.
Relief applies at every surcharge threshold for individuals (₹50 lakh, ₹1 crore, ₹2 crore, and ₹5 crore), at ₹1 crore and ₹10 crore for domestic companies, and at ₹1 crore for partnership firms and LLPs. The income tax department’s online filing utility applies marginal relief automatically. If you prepare returns manually or through a professional, run this check yourself at each threshold you cross.
Penalties and Interest If You Get the Surcharge Wrong
A surcharge error is treated like any other tax shortfall. If you under-report income or apply the wrong surcharge rate, the assessing officer can impose a penalty of 50% of the tax payable on the under-reported amount. If it qualifies as misreporting, such as deliberately applying a lower bracket, the penalty rises to 200%.10Indian Kanoon. Income Tax Act 1961 – Section 270A
Surcharge also feeds into advance tax. Because advance tax is based on estimated total liability for the year including surcharge and cess, underestimating income can create a shortfall that triggers interest under Sections 234B and 234C. Section 234B charges 1% per month on the shortfall if advance tax paid falls below 90% of the assessed tax, and Section 234C charges interest for missed or inadequate quarterly installments. A common mistake is estimating advance tax from last year’s income and forgetting that crossing a new surcharge threshold this year increases liability by more than the proportional income increase.