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Marginal Relief

MARGINAL RELIEF

As per Income Tax Act 1961, in case if income of a non-corporate assesse exceeds Rs. 1 Crore then along with liability of paying normal income tax, He shall also be liable to pay an additional surcharge @ 10 %.

Finance Act, 2014 has bring certain amendment with respect to this provision known as “Marginal Relief”.

As per Finance Act, 2014: – “The amount of income-tax shall be increased by a surcharge at the rate of 10% of such income-tax in case of a non-corporate assesse having a total income exceeding Rs. 1 crore. However, 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 Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore. “

EXPLAINATION

Marginal relief limits the amount of surcharge payable. As per the provisions, amount of tax payable because of increase in income above Rs. 1 Crore shall not exceed the amount exceeding Rs. 1 Crore.

Let’s take an example for better understanding.

Example Mr. A , whose age is 45 years, earned an Income of Rs. 1,00,10,000 during A.Y. 2015-16 . Calculate his income tax after considering surcharge and marginal relief ??

Ans.    STEP 1 Calculate Income Tax on Rs. 1 Crore

Tax on Rs. 1 Crore = Rs. 28, 25,000 /-

 

STEP 2 Calculate Income Tax on income exceeding Rs. 1 Crore

                             Tax on Rs. 10,000 = Rs. 3, 000 /- (i.e. 30% on Rs. 10,000)

 

STEP 3 Calculate Value of surcharge

                             Surcharge = 10 % on (28, 25,000+ 3,000) = Rs. 2,82,800 /-

 

Now, the condition is amount of tax payable because of increase in income above Rs. 1 Crore shall not exceed the amount exceeding Rs. 1 Crore.

Therefore, Amount of Tax payable due to such increase i.e. Rs. 2,85,800 ( Rs. 2, 82,800+ Rs. 3,000 ) should be less than Rs. 10,000

Hence, total amount of Tax = Rs. 28,25,000 + Rs. 10,000 = Rs. 28,35,000 /-

 

Now Suppose in above example, he earned an income of Rs. 1.25 Crore then the above solution would be as follows:-

STEP 1 :- Tax on Rs. 1 Crore = Rs. 28,25,000 /-

STEP 2 :- Tax on Rs. 25 Lakhs = Rs. 7.5 Lakhs (30% on Rs. 25 Lakhs)

STEP 3 :- Surcharge = Rs. 3,57,500 { 10% on (Rs. 28.25 Lakhs + Rs. 7.5 Lakhs) }

Therefore, Amount of Tax payable due to such increase i.e. Rs. 11,07,500 (Rs. 3, 57,500+ Rs. 7,50,000) should be less than Rs. 25 lakhs

Hence, Total Amount of Tax = Rs. 28,25,000 + Rs. 7,50,000 + Rs. 3,57,500 = Rs. 39,32,500

This was the case of Non corporate Assesse. In respect of Corporate assessee, everything remains the same however rate of surcharge applicable shall be 5 % in case if income exceeds Rs. 1 Crore but not exceeding Rs. 10 crore and 10% in case income exceeds Rs. 10 Crore.

MARGINAL RELIEF

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