Surcharge on income tax

The surcharge is an extra charge on the income tax of high earners, at 10 to 37 per cent above Rs. 50 lakh, capped at 25 per cent in the new regime and at 15 per cent on capital gains.

Updated 16 July 2026 · Reviewed by Salary-Calculator.in

The surcharge on income tax is an additional charge levied on the tax, not on the income, of high earners. It is the mechanism by which the tax system asks the highest incomes to contribute a larger share: once total income crosses Rs. 50 lakh, a percentage is added to the income tax already computed on the slabs, and that percentage rises in steps as income rises further. On top of the tax and the surcharge, the 4 per cent health and education cess is then charged.

For the ordinary central government employee the surcharge is largely academic, because it begins only above a total income of Rs. 50 lakh, a figure a salary reaches only at the very top of the pay matrix and usually only when other income is added. But it matters at the apex, and it matters for the choice of regime, because the new tax regime caps the surcharge below the old regime and so lowers the effective top rate.

This article sets out the surcharge in full: the rate table for both regimes, the fact that it is charged on the tax rather than the income, the 15 per cent cap that protects capital gains and dividends, the marginal relief at each threshold, the cess that sits on top, the effective maximum tax rates, and what all of this means for a senior government officer.

The surcharge rate table

The surcharge for an individual rises in four steps, and above Rs. 5 crore the two regimes differ.

Total income (Rs.)	Old regime	New regime
50 lakh to 1 crore	10 per cent	10 per cent
1 crore to 2 crore	15 per cent	15 per cent
2 crore to 5 crore	25 per cent	25 per cent
Above 5 crore	37 per cent	25 per cent (capped)

Up to Rs. 5 crore the rates are identical in the two regimes. The single difference is at the top: the old regime charges 37 per cent above Rs. 5 crore, while the new regime caps the surcharge at 25 per cent, so the 37 per cent rate has no application in the new regime. This cap, introduced when the new regime was reshaped, is the reason a very high earner pays less under the new regime.

Surcharge is charged on the tax, not the income

The most common misunderstanding about the surcharge is that it is a rate on income. It is not; it is a rate on the income tax. A person whose income attracts a 10 per cent surcharge does not pay 10 per cent more income; they pay a surcharge equal to 10 per cent of the income tax that the slabs produced. A short illustration makes this concrete. Take an individual with a total income of Rs. 60 lakh in the old regime.

Item	Amount (Rs.)
Income tax on Rs. 60 lakh (old-regime slabs)	16,12,500
Surcharge at 10 per cent (on the tax)	1,61,250
Tax plus surcharge	17,73,750
Add 4 per cent health and education cess	70,950
Total tax payable	18,44,700

The surcharge of Rs. 1,61,250 is 10 per cent of the tax of Rs. 16,12,500, not of the income, and the cess is then charged on the tax and surcharge together.

The 15 per cent cap on capital gains and dividends

An important protection limits the surcharge on certain kinds of income. The surcharge on long-term and short-term capital gains taxed under Sections 111A, 112A, and 112, and on dividend income, is capped at 15 per cent, however high the total income. So even a person whose other income would attract a 25 or 37 per cent surcharge pays no more than 15 per cent of surcharge on the tax attributable to those capital gains and dividends.

Where a person has a mix of income, the surcharge is applied component by component: the ordinary income bears the surcharge at the rate its total attracts, while the capital-gains and dividend portion bears only the capped 15 per cent. This keeps the surcharge on investment income moderate and is a point a senior government employee who sells property or shares in a high-income year should know.

Marginal relief at each threshold

Because the surcharge switches on across the whole of the tax the moment income crosses a threshold, it would, without protection, create a cliff: a rupee more than Rs. 50 lakh could cost far more than a rupee in extra tax. Marginal relief prevents this. At each of the Rs. 50 lakh, Rs. 1 crore, Rs. 2 crore, and Rs. 5 crore thresholds, the tax plus surcharge cannot exceed the tax on the threshold income plus the amount by which the income exceeds the threshold. So crossing a surcharge threshold by a little can never cost more in extra tax and surcharge than the extra income itself. The mechanism, with worked examples, is set out in the marginal relief article.

The cess on top

After the tax and the surcharge, the 4 per cent health and education cess is charged on the two together. The order of the computation is fixed: the tax is worked on the slabs, any marginal relief is applied, the surcharge is added as a percentage of the tax, marginal relief on the surcharge is applied, and the cess is then charged on the resulting tax plus surcharge. The cess applies in both regimes and to a pensioner’s tax in the same way.

The effective maximum tax rate

Stacking the base rate, the surcharge, and the cess gives the effective maximum marginal rate, the true top rate a taxpayer faces. In the old regime it is 30 per cent multiplied by 1.37 for the surcharge and 1.04 for the cess, which is 42.744 per cent. In the new regime, with the surcharge capped at 25 per cent, it is 30 per cent multiplied by 1.25 and 1.04, which is 39 per cent. The 3.744-point difference between the two peak rates is entirely the surcharge cap, and it is why the new regime is attractive to the highest earners quite apart from its slab structure.

What it means for a government employee

For almost every government employee the surcharge never arises, because a taxable income above Rs. 50 lakh is beyond even the senior scales from salary alone. It becomes relevant only at the apex. A Cabinet Secretary or a Secretary at the top of the pay matrix, at Level 17 or 18, has a basic pay of Rs. 2,25,000 to Rs. 2,50,000 a month, which with dearness allowance and other allowances can bring the annual salary towards, and with other income across, the Rs. 50 lakh mark, attracting the 10 per cent surcharge. An IAS officer or other senior official with substantial rental, interest, or capital-gains income can reach the threshold sooner. For everyone below that level, the surcharge is not part of the calculation, and the ordinary slabs, rebate, and cess are the whole of it.

The surcharge carries forward unchanged under the Income-tax Act 2025 , in force from 1 April 2026; the rates, the caps, and the marginal relief are the same, and for the financial year 2025-26 the tax is computed under the 1961 Act.

Frequently Asked Questions (FAQs)

What is the surcharge on income tax?

The surcharge is an additional charge levied on the income tax, not on the income itself, of high earners. It begins when total income exceeds Rs. 50 lakh, and it is calculated as a percentage of the income tax computed on the slabs. A 4 per cent health and education cess is then charged on the tax plus surcharge.

What are the surcharge rates for 2025-26?

For an individual, the surcharge is 10 per cent where total income exceeds Rs. 50 lakh but not Rs. 1 crore, 15 per cent above Rs. 1 crore but not Rs. 2 crore, 25 per cent above Rs. 2 crore but not Rs. 5 crore, and 37 per cent above Rs. 5 crore in the old regime. In the new regime the surcharge is capped at 25 per cent, so the 37 per cent rate does not apply.

Is the surcharge lower in the new tax regime?

Yes, at the very top. The new regime caps the surcharge at 25 per cent, removing the 37 per cent rate that the old regime applies above Rs. 5 crore. Up to Rs. 5 crore the rates are the same in both regimes. The cap lowers the effective maximum tax rate from 42.744 per cent in the old regime to 39 per cent in the new regime.

Is there a surcharge on capital gains?

Yes, but it is capped. The surcharge on long-term and short-term capital gains under Sections 111A, 112A, and 112, and on dividend income, is limited to 15 per cent regardless of the total income, even where the rest of the income would attract 25 or 37 per cent. In a mixed-income case the surcharge is applied component by component, with the 15 per cent cap on the capital-gains and dividend part.

What is marginal relief on the surcharge?

Marginal relief prevents the surcharge from causing a jump in tax larger than the extra income when income just crosses a threshold. At each of the Rs. 50 lakh, Rs. 1 crore, Rs. 2 crore, and Rs. 5 crore thresholds, the tax plus surcharge cannot exceed the tax at that threshold plus the income above it. The detail and worked examples are in the marginal relief article.

What is the effective maximum tax rate?

For the highest earners the effective maximum marginal rate is 42.744 per cent in the old regime (30 per cent tax, plus the 37 per cent surcharge, plus the 4 per cent cess) and 39 per cent in the new regime (30 per cent tax, plus the 25 per cent surcharge cap, plus the 4 per cent cess). The difference is entirely the surcharge cap.

Do government employees pay the surcharge?

Only the most senior. The surcharge begins above a total income of Rs. 50 lakh, which a salary alone reaches only at the apex pay levels, and even then usually only once other income is added. The great majority of government employees, whose taxable income is well below Rs. 50 lakh, never pay any surcharge.

External references

References

Income-tax Act, the surcharge rates for an individual: 10 per cent above Rs. 50 lakh, 15 per cent above Rs. 1 crore, 25 per cent above Rs. 2 crore, and 37 per cent above Rs. 5 crore in the old regime, with the surcharge capped at 25 per cent in the new regime.
Income-tax Act, the cap of 15 per cent on the surcharge attributable to capital gains under Sections 111A, 112A, and 112, and to dividend income, regardless of the level of total income, applied component-wise.
Income-tax Act, the marginal relief on surcharge at the Rs. 50 lakh, Rs. 1 crore, Rs. 2 crore, and Rs. 5 crore thresholds, limiting the tax plus surcharge to the tax at the threshold plus the income above it.
Income-tax Act, the 4 per cent health and education cess charged on the tax plus surcharge, giving effective maximum marginal rates of 42.744 per cent (old regime) and 39 per cent (new regime).
The provisions carry forward under the Income-tax Act, 2025 (in force from 1 April 2026); for the financial year 2025-26 the tax and surcharge are computed under the Income-tax Act, 1961.