How Are Cess And Surcharge Calculated For Incomes Above Rs 50 lakh?

For FY2023, the tax rates have been left unchanged. While the taxes have not been increased, which is a relief, those in the higher tax brackets and with high incomes continue to pay surcharge, which increases their total tax outgo.  A nationwide survey by Fight Inequality Alliance India (FIA India) had found that more than 80 per cent of those who participated in the study (3,231 Indians) supported tax on the rich and corporations who earned record profits during the pandemic. But how much are the ‘rich’ taxed in India really?

Here are a few things to know about cess and surcharge:

1. In India, on top of the income tax rates, taxpayers also have to pay surcharge and cess, which increases the total tax rate substantially.

2. Health and education cess is levied at the rate of 4 per cent on the amount of income-tax plus surcharge.

3. The rate of surcharges is 10 per cent, 15 per cent, 25 per cent and 37 per cent based on the taxpayers’ total income.

4. Cess is calculated on total tax and surcharge amount; surcharge is calculated not on the income but only on the total tax amount.

5. Cess is collected from every taxpayer to meet a certain purpose, and the surcharge is an additional tax collected from the taxpayers who have higher slab income.

6. Surcharge applies to the taxpayer whose income is more than Rs 50 lakh.

The enhanced surcharge of 25 per cent and 37 per cent is not levied, from income chargeable to tax under sections 111A (short term capital gains) and 112A (long term capital gains). Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15 per cent.

How much is the tax on various tax slabs? Read here to find out.

Here’s a look at what the surcharge and cess amount to in the old tax regime:

For income between Rs50 lakh and Rs1 crore, the actual tax rate is 34.32 per cent 

For income between Rs1 crore and Rs2 crore, the actual tax rate is 35.88 per cent 

For income between Rs2 crore and Rs5 crore, the actual tax rate is 39 per cent 

For income above Rs5 crore, the actual tax rate is 42.74 per cent 

*Rates for individuals under 60 years in old tax regime

Source: Deloitte India