How a 10% surcharge can swallow up to 70% of your income above ₹50 lakh

livemint.com:

The concept of a surcharge is simple – it’s an extra tax on your total tax liability if your income exceeds ₹50 lakh. Under the new tax regime, the surcharge is 10% for taxable income above ₹50 lakh up to ₹1 crore, 15% for taxable income above ₹1 crore up to ₹2 crore, and 25% on income above ₹2 crore. In practice, though, it’s anything but simple.

Let’s say Mr A crossed the ₹50 lakh surcharge threshold in FY24. He had an appraisal in May 2023 that increased his taxable income from ₹48 lakh to ₹51 lakh. He was aware that income above ₹50 lakh attracts a 10% surcharge. However, the actual tax outgo still came as a rude shock. His income above ₹50 lakh was just ₹1 lakh, but the surcharge, according to the calculator on the income tax department's website, turned out to be ₹70,000. That’s because the surcharge applies to the total tax liability and not just the tax on income above ₹50 lakh. That meant 70% of his excess income above ₹50 lakh went towards taxes.

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To be sure, the government offers relief to those whose excess income above ₹50 lakh turns out to be less than the additional tax from the surcharge. However, others pay at least 70% of that excess income in taxes. If your taxable income is just ₹100 more than ₹50 lakh, for instance, the surcharge works out to ₹70.

What happened with Mr A has been a reality for many since the surcharge on income above ₹50 lakh was introduced in 2017. Strategy and finance consultant and IIT-IIM alumnus Dheeraj Singh discovered this the hard way when he was filing his wife’s income tax return. «I realised while filing the ITR that the tax outgo was much higher than what I had paid last year. A good part of her