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Understanding Amended Surcharge on Income Tax

understanding-amended-surcharge-on-income-tax

The Taxation Laws (Amendment) Bill, 2019 has not only reduced the corporate rate of income tax but also reduced the surcharge on income tax for certain taxpayers for certain categories of income. 

This article aims to discuss the amended surcharge on income tax in a simple approach so that every reader can understand and apply the computation of amended surcharge on income tax comfortably.


    Introduction

    Though the headline news for the surcharge on income tax looks simple, it is not the case. It appears that there is simply a reduction of enhanced surcharge on income tax introduced by the Finance Minister Nirmala Sitaraman in the Budget 2019

    Actually, the computation of surcharge has become more complex after the amendment and needs a careful study for the application of surcharge on computed income tax for AY 2020-21. This assumes more importance when a person has certain other nature of income where there is no reduction in surcharge on income tax.

    The provisions of Income Tax Act, 1961 and Finance (No. 2) Act, 2019 has been amended by the Taxation Laws (Amendment) Bill, 2019. While presenting the Union Budget on 5th July 2019, the Finance Minister Nirmala Sitaraman has introduced two categories of enhanced surcharge on income tax in the case of an individual, Hindu Undivided Family (HUF), Association of Persons (AoP), Body of Individuals (BoI), whether incorporated or not, and every Artificial Juridical Person as follows-

    Quantum of Total Income
    Rate of Surcharge
    Where the total income exceeds Rs. 2.0 Crore but does not exceed Rs. 5.0 Crore
    25 %
    Where the total income exceeds Rs. 5.0 Crore
    37%

    This has created a huge hue and cry among the super-rich taxpayers and the FIIs from the stock market and the income-tax rates were shot up to 39 percent and 42.74 percent respectively. The market participants did not take it favorably and the Sensex was bleeding after the introduction of the enhanced surcharge on income tax.

    In order to provide relief to such foreign market participants, who are mainly assessed to tax as AoP or BoI, the Finance Minister Nirmala Sitaraman hold a press conference in Goa on 20th September 2019 and announced the rollback of enhanced surcharge on income tax from the AY 2020-21 itself.

    On the same day, the President of India has promulgated the Taxation Laws (Amendment) Ordinance, 2019 which is passed by the Lok Sabha and Rajya Sabha in December 2019.

    The amendment related to the reduction of surcharge on income tax can be classified into three categories:
    1. Surcharge on Income Tax for AY 2020-21
    2. Surcharge on TDS for payments to non-residents during FY 2019-20, and
    3. Surcharge on domestic companies

      Surcharge on Income Tax for AY 2020-21

      The amendments related to the surcharge on income-tax for AY 2020-21 (including for advance-tax payment during FY 2019-20) are carried on in the case of  Individuals, Hindu Undivided Family (HUF), Association of Persons (AoP), Body of Individuals (BoI), whether incorporated or not and every Artificial Juridical Person and for the income chargeable to income-tax under section 111A or section 112A.

      The rate of surcharge on income-tax for other nature or heads of income shall remain unchanged and the enhanced provision of surcharge on income-tax shall continue to be levied on such other income.

      It may be noted that section 111A and section 112A is related to the computation of income tax on income mainly related to the stock market transactions by way of sale/purchase of equity shares of companies, mutual fund units of equity-oriented mutual funds. It also includes units of business trust.

      Section 111A deals with Short Term Capital Gains arising from the transfer of listed equity shares or units of equity-oriented mutual funds and STT is paid.

      Section 112A deals with Long Term Capital Gains arising from the transfer of listed equity shares or units of equity-oriented mutual funds and STT is paid. These gains were exempt from tax prior to FY 2018-19. Such Capital Gains to the extent of Rs. 1,00,000 is exempt from tax but is included in total income for determining the surcharge amount on income tax.

      The relevant amendment is carried on in the Finance (No. 2) Act, 2019 in the First Schedule / Part-III / Surcharge on income-tax and the amended provision related to the surcharge on income tax is given below-

      The amount of income-tax computed on the total income, or under the provisions of section 111A or section 112 or section 112A of the Income-tax Act, shall be increased by a surcharge in the case of every individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person in the following manner-
      Table-1
      Sl
      Quantum of Total Income
      Rate of Surcharge
      (a)
      Where the total income (including the income under the provisions of section 111A and section 112A ) exceeds Rs. 50 Lakh but does not exceed Rs. 1.0 Crore
      10%
      (b)
      Where the total income (including the income under the provisions of section 111A and section 112A) exceeds Rs. 1.0 Crore but does not exceed Rs. 2.0 Crore
      15 %
      (c)
      Where the total income (excluding the income under the provisions of section 111A and section 112A) exceeds Rs. 2.0 Crore but does not exceed Rs. 5.0 Crore
      25 %
      (d)
      Where the total income (excluding the income under the provisions of section 111A and section 112A) exceeds Rs. 5.0 Crore
      37%
      (e)
      Where the total income (including the income under the provisions of section 111A and section 112A) exceeds Rs. 2.0 Crore, but is not covered under clauses (c) and (d)
      15%

      An exceptional provision is provided where the total income includes any income chargeable under section 111A and section 112A of the Income-tax Act, the rate of surcharge on the amount of income-tax computed on that part of the income shall not exceed 15 percent.

      The above rate of surcharge on income-tax is applicable for both residents and non-residents. 

      Illustrations

      The above provision is illustrated with the following examples.

      Example 1: The Total Income of Mr. A in the FY 2019-20 is Rs. 35,00,000 which includes Rs. 3,00,000 and Rs. 2,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 30,00,000.
      Compute the amount of surcharge payable by Mr. A for the FY 2019-20 (AY 2020-21).

      The total income of Mr. A is tabulated below-

      Nature of Income
      Amount
      (in Rs.)
      Short Term Capital Gains u/s 111A
      3,00,000
      Long Term Capital Gains u/s 112A
      2,00,000
      Salary Income
      30,00,000
      Total Income
      35,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      45,000
      10,000
      7,12,500
      7,67,500
      Add: Surcharge
      Nil
      Nil
      Nil
      Nil
      Total Tax and Surcharge
      45,000
      10,000
      7,12,500
      7,67,500

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      45,000
      10,000
      7,12,500
      7,67,500
      Add: Surcharge
      Nil
      Nil
      Nil
      Nil
      Total Tax and Surcharge
      45,000
      10,000
      7,12,500
      7,67,500

      Comments:
      Since the total income does not exceed Rs. 50,00,000 no surcharge is applicable in the pre-amended as well as post-amendment period.

      Example 2: The Total Income of Mr. B in the FY 2019-20 is Rs. 56,00,000 which includes Rs. 3,00,000 and Rs. 2,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 51,00,000.
      Compute the amount of surcharge payable by Mr. B for the FY 2019-20 (AY 2020-21).

      The total income of Mr. B is tabulated below-

      Nature of Income
      Amount
      (in Rs.)
      Short Term Capital Gains u/s 111A
      3,00,000
      Long Term Capital Gains u/s 112A
      2,00,000
      Salary Income
      51,00,000
      Total Income
      56,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      45,000
      10,000
      13,42,500
      13,97,500
      Add: Surcharge @ 10%
      4,500
      1,000
      1,34,250
      1,39,750
      Total Tax and Surcharge
      49,500
      11,000
      1476750
      15,37,250

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      45,000
      10,000
      13,42,500
      13,97,500
      Add: Surcharge
      4,500
      1,000
      1,34,250
      1,39,750
      Total Tax and Surcharge
      49,500
      11,000
      1476750
      15,37,250

      Comments:
      Since the total income of Mr. B exceeds Rs. 50,00,000, he is liable to pay surcharge @ 10 percent on the amount of income tax. There is no change in the computation of surcharge in the amendment for total income including income chargeable under section 111A and section 112A if the total income exceeds Rs. 50 lakh but does not exceed Rs.1 (one) crore. Hence, surcharge @ 10 percent is computed in both the pre-amended and post-amended case.

      Example 3: The Total Income of Mr. C in the FY 2019-20 is Rs. 1,51,00,000 which includes Rs. 1,00,00,000 and Rs. 25,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 26,00,000.
      Compute the amount of surcharge payable by Mr. C for the FY 2019-20 (AY 2020-21).

      The total income of Mr. C is tabulated below-

      Nature of Income
      Amount
      (in Rs.)
      Short Term Capital Gains u/s 111A
      1,00,00,000
      Long Term Capital Gains u/s 112A
      25,00,000
      Salary Income
      26,00,000
      Total Income
      1,51,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      15,00,000
      2,40,000
      5,92,500
      23,32,500
      Add: Surcharge @ 15%
      2,25,000
      36,000
      88,875
      3,49,875
      Total Tax and Surcharge
      17,25,000
      2,76,000
      681375
      26,82,375

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      15,00,000
      2,40,000
      5,92,500
      23,32,500
      Add: Surcharge @ 15%
      2,25,000
      36,000
      88,875
      3,49,875
      Total Tax and Surcharge
      17,25,000
      2,76,000
      681375
      26,82,375

      Comments:
      Since the total income of Mr. C exceeds Rs. 1,00,00,000, he is liable to pay surcharge @ 15 percent on the amount of income tax. There is no change in the computation of surcharge in the amendment for total income including income chargeable under section 111A and section 112A if the total income exceeds Rs. 1 (one) crore but does not exceed Rs.2 (two) crore. Hence, surcharge @ 15 percent is computed in both the pre-amended and post-amended case.

      Example 4: The Total Income of Mr. D in the FY 2019-20 is Rs. 2,50,00,000 which includes Rs. 20,00,000 and Rs. 25,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 2,05,00,000.
      Compute the amount of surcharge payable by Mr. D for the FY 2019-20 (AY 2020-21).

      The total income of Mr. D is tabulated below-

      Nature of Income
      Amount
       (in Rs.)
      Short Term Capital Gains u/s 111A
      20,00,000
      Long Term Capital Gains u/s 112A
      25,00,000
      Salary Income
      2,05,00,000
      Total Income
      2,50,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      3,00,000
      2,40,000
      59,62,500
      65,02,500
      Add: Surcharge @ 25%
      75,000
      60,000
      14,90,625
      16,25,625
      Total Tax and Surcharge
      3,75,000
      3,00,000
      7453125
      81,28,125

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      3,00,000
      2,40,000
      59,62,500
      65,02,500
      Add: Surcharge @ 15%/15%/25%
      45,000
      36,000
      14,90,625
      15,71,625
      Total Tax and Surcharge
      3,45,000
      2,76,000
      7453125
      80,74,125

      Comments:
      In the case of Mr. D, the amended provisions for computation of the surcharge on income-tax shall apply. This is because the total income of Mr. D exceeds Rs. 2 crore and has income from shares trading.

      Before the amendment, the applicable surcharge was straight forward @ 25 percent. However, after the amendment, the application of the surcharge is not straight forward.

      Since the total income exceeds Rs. 2 (two) crore, (c) of Table-1 shall apply. In the case of Mr. D, income other than income chargeable u/s 111A and u/s 112A is more than Rs. 2 crore at Rs. 2,05,00,000. Hence, on this part of income surcharge @ 25 percent shall apply.

      In case of income chargeable u/s 111A and u/s 112A, as per the proviso or exception in Table-1, surcharge @ 15 percent shall apply. The amendment has reduced the surcharge from Rs. 16,25,625 to Rs. 15,71,625.

      Example 5: The Total Income of Mr. E in the FY 2019-20 is Rs. 2,50,00,000 which includes Rs. 50,00,000 and Rs. 25,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 1,75,00,000.
      Compute the amount of surcharge payable by Mr. E for the FY 2019-20 (AY 2020-21).

      The total income of Mr. E is tabulated below-

      Nature of Income
      Amount
      (in Rs.)
      Short Term Capital Gains u/s 111A
      50,00,000
      Long Term Capital Gains u/s 112A
      25,00,000
      Salary Income
      1,75,00,000
      Total Income
      2,50,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      7,50,000
      2,40,000
      50,62,500
      60,52,500
      Add: Surcharge @ 25%
      1,87,500
      60,000
      12,65,625
      15,13,125
      Total Tax and Surcharge
      9,37,500
      3,00,000
      6328125
      75,65,625

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      7,50,000
      2,40,000
      50,62,500
      60,52,500
      Add: Surcharge @ 15%/15%/15%
      1,12,500
      36,000
      7,59,375
      9,07,875
      Total Tax and Surcharge
      8,62,500
      2,76,000
      5821875
      69,60,375

      Comments:
      In the case of Mr. E, the amended provisions for computation of the surcharge on income-tax shall apply. This is because the total income of Mr. E exceeds Rs. 2 crore and has income from shares trading.

      Before the amendment, the applicable surcharge was straight forward @ 25 percent. However, after the amendment, the application of the surcharge is not straight forward.

      Since the total income exceeds Rs. 2 (two) crore, (c) of Table-1 shall apply. In the case of Mr. E, income other than income chargeable u/s 111A and u/s 112A is not more than Rs. 2 crore at Rs. 1,75,00,000. Hence (c) fails to trigger in this case. When (c) will fail, (e) will trigger. In (e), all the income or total income is subject to a surcharge of 15 percent only.

      Hence, in the given case of Mr. E, the surcharge is applied @ 15 percent on all the nature of income chargeable u/s 111A, u/s 112A and on salary income.

      After the amendment, the surcharge is lowered to Rs. 9,07,875 from Rs. 15,13,125 in the pre-amendment period. Further, note that the surcharge amount in Example-5 is reduced to Rs. 9,07,875 from Rs. 15,71,625 in Example 4 whereas total income remains the same at Rs. 2.50 crore in both the examples.

      Example 6: The Total Income of Mr. F in the FY 2019-20 is Rs. 8,10,00,000 which includes Rs. 5,00,000 and Rs. 2,00,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 6,05,00,000.
      Compute the amount of surcharge payable by Mr. F for the FY 2019-20 (AY 2020-21).

      The total income of Mr. F is tabulated below-

      Nature of Income
      Amount
      (in Rs.)
      Short Term Capital Gains u/s 111A
      5,00,000
      Long Term Capital Gains u/s 112A
      2,00,00,000
      Salary Income
      6,05,00,000
      Total Income
      8,10,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      75,000
      19,90,000
      1,79,62,500
      2,00,27,500
      Add: Surcharge @ 37%
      27,750
      7,36,300
      66,46,125
      74,10,175
      Total Tax and Surcharge
      1,02,750
      27,26,300
      24608625
      2,74,37,675

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      75,000
      19,90,000
      1,79,62,500
      2,00,27,500
      Add: Surcharge @ 15%/15%/37%
      11,250
      2,98,500
      66,46,125
      69,55,875
      Total Tax and Surcharge
      86,250
      22,88,500
      24608625
      2,69,83,375

      Comments:
      In the case of Mr. F, the amended provisions for computation of the surcharge on income-tax shall apply. This is because the total income of Mr. E exceeds Rs. 5 crore and has income from shares trading.

      Before the amendment, the applicable surcharge was straight forward @ 37 percent. However, after the amendment, the application of the surcharge is not straight forward.

      Since the total income exceeds Rs. 5 (five) crore, (d) of Table-1 shall apply. In the case of Mr. F, income other than income chargeable u/s 111A and u/s 112A is more than Rs. 5 crore at Rs. 6,05,00,000. Hence (d) will in this case. When (d) will apply, the surcharge on other income shall be applied @ 37 percent and on income chargeable u/s 111A and u/s 112A shall be applied @ 15 percent as per the proviso or exception in Table-1.

      After the amendment, the surcharge has come down to Rs. 69,55,875 from Rs. 74,10,175 in the pre-amendment period.

      Example 7: The Total Income of Mr. G in the FY 2019-20 is Rs. 6,10,00,000 which includes Rs. 5,00,000 and Rs. 2,00,00,000 as short term capital gains (STCG) on sale of listed equity shares on which STT is paid and long term capital gains (LTCG) on sale of listed equity shares on which STT is paid respectively and Income from salary Rs. 4,05,00,000.
      Compute the amount of surcharge payable by Mr. G for the FY 2019-20 (AY 2020-21).

      The total income of Mr. G is tabulated below-

      Nature of Income
      Amount 
      (in Rs.)
      Short Term Capital Gains u/s 111A
      5,00,000
      Long Term Capital Gains u/s 112A
      2,00,00,000
      Salary Income
      4,05,00,000
      Total Income
      6,10,00,000

      Computation of Surcharge on income tax for AY 2020-21

      Pre-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      75,000
      19,90,000
      1,19,62,500
      1,40,27,500
      Add: Surcharge @ 37%
      27,750
      7,36,300
      44,26,125
      51,90,175
      Total Tax and Surcharge
      1,02,750
      27,26,300
      16388625
      1,92,17,675

      Post-amendment Surcharge
      Income u/s 111A
      Income u/s 112A
      Other Incomes
      Total
      Income Tax
      75,000
      19,90,000
      1,19,62,500
      1,40,27,500
      Add: Surcharge @ 15%/15%/15%
      11,250
      2,98,500
      17,94,375
      21,04,125
      Total Tax and Surcharge
      86,250
      22,88,500
      13756875
      1,61,31,625

      Comments:
      In the case of Mr. G, the amended provisions for computation of the surcharge on income-tax shall apply. This is because the total income of Mr. G exceeds Rs. 5 crore and has income from shares trading.

      Before the amendment, the applicable surcharge was straight forward @ 37 percent. However, after the amendment, the application of the surcharge is not straight forward.

      Since the total income exceeds Rs. 5 (five) crore, (d) of Table-1 shall apply. In the case of Mr. G, income other than income chargeable u/s 111A and u/s 112A is not more than Rs. 5 crore at Rs. 4,05,00,000. Hence (d) fails to trigger in this case. When (d) will fail, (e) will trigger. In (e), all the income or total income is subject to a surcharge of 15 percent only.

      Hence, in the given case of Mr. G, the surcharge is applied @ 15 percent on all the nature of income chargeable u/s 111A, u/s 112A and on salary income.

      After the amendment, the surcharge is lowered to Rs. 21,04,0125 from Rs. 51,90,175 in the pre-amendment period. 

      Note: In all the given cases, marginal relief, if any, and Health & Education Cess shall be computed in the normal manner. The same is ignored here for the simplicity of the calculation and understanding of the concept.

      Surcharge on TDS for payments to non-residents

      The provisions related to the surcharge on TDS for payments to non-resident taxpayers being an individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not or every artificial juridical person has been amended.

      The amount of income-tax on the payments made to above-mentioned categories of taxpayers shall be increased by a surcharge at the following amended rates-
      Table-2
      Sl
      Quantum of Total Income
      Rate of Surcharge
      (I)
      Where the income or the aggregate of such incomes (including the income under the provisions of section 111A and section 112A ) paid or likely to be paid exceeds Rs. 50 Lakh but does not exceed Rs. 1.0 Crore
      10%
      (II)
      Where the income or the aggregate of such incomes (including the income under the provisions of section 111A and section 112A ) paid or likely to be paid exceeds Rs. 1.0 Crore but does not exceed Rs. 2.0 Crore
      15 %
      (III)
      Where the income or the aggregate of such incomes (excluding the income under the provisions of section 111A and section 112A) paid or likely to be paid exceeds Rs. 2.0 Crore but does not exceed Rs. 5.0 Crore
      25 %
      (IV)
      Where the income or the aggregate of such incomes (excluding the income under the provisions of section 111A and section 112A) paid or likely to be paid exceeds Rs. 5.0 Crore
      37%
      (V)
      Where the income or the aggregate of such incomes (including the income under the provisions of section 111A and section 112A) paid or likely to be paid exceeds Rs. 2.0 Crore, but is not covered under clauses (IV) and (V)
      15%

      An exceptional provision is provided where the total income includes any income chargeable under section 111A and section 112A of the Income-tax Act, the rate of surcharge on the amount of TDS computed on that part of the income shall not exceed 15 percent.

      In the nutshell, the following rule applies for calculating surcharge on TDS for payments to-
      a non-resident i.e. the payee or recipient of income is a non-resident; and
      such a non-resident is 
      an individual or 
      a Hindu undivided family or 
      an association of persons or 
      a body of individuals, whether incorporated or not or
      an artificial juridical person 
      then for payment of income chargeable under section 111A or 112A, the surcharge on TDS shall be calculated as follows-
      Table-2A
      Sl
      Quantum of Total Income
      Rate of Surcharge
      1.
      If payment of income under section 111A and section 112A during the FY 2019-20 does not exceed Rs. 50 Lakh
      Nil
      2.
      If payment of income under section 111A and section 112A during the FY 2019-20 exceeds Rs. 50 Lakh but does not exceed Rs. 1.0 Crore
      10%
      3.
      If payment of income under section 111A and section 112A during the FY 2019-20 exceeds Rs. 1.0 Crore
      15 %

      and for payment of other incomes, the surcharge on TDS shall be calculated as follows-
      Table-2B
      Sl
      Quantum of Total Income
      Rate of Surcharge
      1.
      If payment of other income chargeable to tax during the FY 2019-20 does not exceed Rs. 50 Lakh
      Nil
      2.
      If payment of other income chargeable to tax during the FY 2019-20 exceeds Rs. 50 Lakh but does not exceed Rs. 1.0 Crore
      10%
      3.
      If payment of other income chargeable to tax during the FY 2019-20 exceeds Rs. 1.0 Crore but does not exceed Rs. 2.0 Crore
      15 %
      4.
      If payment of other income chargeable to tax during the FY 2019-20 exceeds Rs. 2.0 Crore but does not exceed Rs. 5.0 Crore
      25%
      3.
      If payment of other income chargeable to tax during the FY 2019-20 exceeds Rs. 5.0 Crore
      37 %

      and if the resident payer pays income in a combination of both the incomes then Table-2 should be followed to determine the correct rate of surcharge on TDS.

      Surcharge on Domestic Companies

      Currently, a domestic company is liable to pay surcharge @ 7 percent if the total income exceeds Rs. 1.0 Crore but does not exceed Rs. 10 Crore and 12 percent where the total income exceeds Rs. 10 Crore.

      Accordingly, a domestic is not liable for the surcharge on income-tax if total income is less than Rs. 1.0 Crore.
      Table-3
      Sl
      Level of Total Income
      Rate of Surcharge
      (a)
      Where the total income is less than Rs. 1.0 Crore
      Nil
      (b)
      Where the total income exceeds Rs. 1.0 Crore but does not exceed Rs. 10.0 Crore
      7%
      (c)
      Where the total income exceeds Rs. 10.0 Crore
      12%

      Further, marginal relief is available from the surcharge on income-tax.

      The Taxation Laws (Amendment) Bill, 2019 has inserted two new sections that have given an option to a domestic company to opt for a lower rate of income tax under section 115BAA and section 115BAB.

      Such a company that has exercised to pay tax under section 115BAA or section 115BAB is required to pay a surcharge on income tax at a flat rate of 10 percent irrespective of quantum of total income.
      Table-4
      Sl
      Level of Total Income
      Rate of Surcharge
      (a)
      A company that has exercised to pay tax under section 115BAA or section 115BAB
      10%

      Further, no marginal relief is available from the surcharge so levied on the income tax.

      Surcharge on income under section 115AD

      Presently, the surcharge on income tax chargeable to tax under section 115AD is provided in clause (a) of the third proviso to section 2(9) of the Finance (No. 2), Act, 2019.

      It covers every individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not or every artificial juridical person.

      The clause (a) is now amended and the surcharge on income tax on income chargeable to tax under section 115AD is excluded.

      A new clause (aa) is inserted after the clause (a) to levy a surcharge on income tax on total income having income chargeable to tax under section 115AD. 

      However, in the amended provision only individuals, association of persons or body of individuals, whether incorporated or not, have been included. Hindu undivided family and artificial juridical persons are now excluded from the levy of surcharge on income tax on income chargeable to tax under section 115AD.

      The levy of surcharge on income tax having income chargeable to tax under section 115AD in the case of individuals, association of persons or body of individuals, whether incorporated or not shall be determined in the following manner-
      Table-5
      Sl
      Quantum of Total Income
      Rate of Surcharge
      (i)
      Where the total income exceeds Rs. 50 Lakh but does not exceed Rs. 1.0 Crore
      10%
      (ii)
      Where the total income exceeds Rs. 1.0 Crore but does not exceed Rs. 2.0 Crore
      15 %
      (iii)
      Where the total income [excluding the income under section 115AD(1)(b)] exceeds Rs. 2.0 Crore but does not exceed Rs. 5.0 Crore
      25 %
      (iv)
      Where the total income [excluding the income under section 115AD(1)(b)] exceeds Rs. 5.0 Crore
      37%
      (v)
      Where the total income [including the income under section 115AD(1)(b)] exceeds Rs. 2.0 Crore, but is not covered under clauses (iii) and (iv)
      15%

      An exceptional provision is provided where the total income includes any income chargeable under section 115AD(1)(b) of the Income-tax Act, the rate of surcharge on the amount of income-tax computed on that part of the income shall not exceed 15 percent.

      Section 115AD deals with 'Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer'.

      Section 115AD(1) charges the following two types of income of a Foreign Institutional Investor—

      Section 115AD(1)(a): It includes income other than income by way of dividends referred to in section 115-O received in respect of securities (other than units referred to in section 115AB).

      Section 115AD(1)(b): It includes income by way of short-term or long-term capital gains arising from the transfer of such securities.

      Conclusion

      Thus from the above analysis, it can be seen that there is a substantial reduction in the tax liability of the mentioned taxpayers due to a substantial reduction in the surcharge amount on income-tax. Further, the amendment made the computation of surcharge on income-tax more complex as compared to the pre-amendment era, which is attempted to simplify in this article. readers may post their questions, if any, in the comments section to clear any doubts on the topic.

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      1 Comments

      1. in example 7 they have charged 15% surcharge on other income/salary but shouldn't it be 25% since the surcharge rate for >2cr uptol 5cr is 25% and the income is 4,05,00,000?

        ReplyDelete