Quick Answer
Under the Income-tax Act, 2025 (30 of 2025), which received Presidential assent on 21 August 2025 and commenced on 1 April 2026, surcharge is an additional charge on the basic income-tax liability of high-income taxpayers. For individuals under the new regime (default), surcharge is 10% for ₹50L–₹1Cr, 15% for ₹1Cr–₹2Cr, and 25% above ₹2Cr — the old 37% rate has been abolished under the new regime. Domestic companies pay 7% or 12% based on income, with concessional-rate companies paying a flat 10%. Health and Education Cess of 4% is levied on (tax + surcharge) for all taxpayers. For tax year 2026-27 onwards, marginal relief is automatically applied at each slab boundary.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
Surcharge and health education cess are not separate taxes — they are additional levies imposed on the basic income-tax liability. Most taxpayers with salary income up to ₹50 lakh never pay surcharge and only encounter cess as the 4% line at the bottom of their tax computation. But for high-earning individuals, companies, and firms, surcharge can meaningfully push the effective tax rate. This guide explains every surcharge and cess rule for tax year 2026-27 under the Income-tax Act, 2025 — the first tax year under the new Act.
Definition — Surcharge: An additional charge on the basic income-tax liability of specified classes of taxpayers whose total income exceeds prescribed thresholds. Surcharge is computed as a percentage of the tax (not of the income) and is levied under the Income-tax Act, 2025 as amended by the Finance Act, 2026.
Definition — Health and Education Cess: A uniform 4% charge on the aggregate of (income-tax + surcharge), levied on every taxpayer. The cess is earmarked for Central Government expenditure on health and education. It replaces the earlier Education Cess (2%) and Secondary and Higher Education Cess (1%) of the 1961 Act.
For any taxpayer, the final tax computation works in three steps: (1) compute basic income-tax on total income using applicable slabs or flat rates; (2) compute surcharge as a percentage of the basic tax (depending on total income and taxpayer category); (3) compute 4% health and education cess on the sum of (basic tax + surcharge). Apply marginal relief at each surcharge threshold so that the additional tax on incremental income does not exceed the incremental income itself. The total of tax + surcharge + cess, minus TDS, minus advance tax, minus rebates and reliefs, is the net liability.
Under the new regime — the default tax regime under the Income-tax Act, 2025 — surcharge on individuals, HUFs, AOPs, BOIs, and artificial juridical persons is capped at 25%. The 37% surcharge rate available under the 1961 Act’s old regime has been abolished for the new regime.
| Total income | Surcharge rate (new regime) |
|---|---|
| Up to ₹50,00,000 | Nil |
| ₹50,00,001 to ₹1,00,00,000 | 10% |
| ₹1,00,00,001 to ₹2,00,00,000 | 15% |
| Above ₹2,00,00,000 | 25% (capped) |
Important: Under the new regime, the surcharge rate does not rise above 25% regardless of how high the total income goes. This is a deliberate policy choice to encourage high earners to opt for the default new regime.
For taxpayers who opt out of the default and choose the old regime, the 37% surcharge rate continues to apply on income above ₹5 crore:
| Total income | Surcharge rate (old regime) |
|---|---|
| Up to ₹50,00,000 | Nil |
| ₹50,00,001 to ₹1,00,00,000 | 10% |
| ₹1,00,00,001 to ₹2,00,00,000 | 15% |
| ₹2,00,00,001 to ₹5,00,00,000 | 25% |
| Above ₹5,00,00,000 | 37% |
For resident individuals and HUFs earning long-term or short-term capital gains from the transfer of listed equity shares and equity-oriented mutual funds, the surcharge on the equity capital gains portion is capped at 15%, regardless of the total income. This cap was introduced in the July 2024 Budget and is preserved under the Income-tax Act, 2025.
The 15% cap applies to:
The cap ensures that equity investors do not face prohibitive surcharge rates of 25% or 37% on their equity gains, which would otherwise make the tax regime economically punitive for the Indian capital market.
| Total income | Regular rate | Concessional rate (Sec 115BAA/BAB equivalent) |
|---|---|---|
| Up to ₹1 crore | Nil | 10% (flat) |
| ₹1 crore to ₹10 crore | 7% | 10% (flat) |
| Above ₹10 crore | 12% | 10% (flat) |
| Total income | Surcharge rate |
|---|---|
| Up to ₹1 crore | Nil |
| ₹1 crore to ₹10 crore | 2% |
| Above ₹10 crore | 5% |
Partnership firms, LLPs, and cooperative societies fall under separate surcharge regimes:
Health and Education Cess is levied at a flat rate of 4% on the aggregate of (income-tax + surcharge). It applies to every taxpayer — individuals, HUFs, firms, LLPs, companies, cooperative societies, NRIs, foreign companies — with no exemption. The cess earmark is for Central Government expenditure on health and primary and secondary education.
There is no separate cess on VDA income, securities transaction tax, or other specific taxes — the 4% cess applies on the aggregate tax liability as a single line.
Marginal relief is a fairness mechanism that prevents a “cliff effect” at each surcharge threshold. Without marginal relief, an individual earning ₹50,00,001 would pay substantially more tax than one earning ₹50,00,000 because the 10% surcharge would kick in on the entire tax. Marginal relief ensures that the additional tax (including surcharge) on the incremental income does not exceed the incremental income itself.
Formula for marginal relief at ₹50 lakh boundary: If (tax + surcharge on income X) > (tax on ₹50L + (X − ₹50L)), the surcharge is reduced by the excess. The same principle applies at the ₹1 crore, ₹2 crore, and ₹5 crore boundaries.
Total income: ₹55,00,000
Basic tax (new regime): Sec 87A does not apply; slab tax ≈ ₹14,30,000
Surcharge (10% since income > ₹50L): ₹14,30,000 × 10% = ₹1,43,000
Tax + surcharge: ₹15,73,000
Marginal relief check: Additional tax vs ₹50L (which has ₹12,30,000 tax) = ₹15,73,000 − ₹12,30,000 = ₹3,43,000; additional income = ₹5,00,000. Since ₹3,43,000 < ₹5,00,000, no marginal relief needed.
Cess at 4% on ₹15,73,000 = ₹62,920
Total tax liability = ₹16,35,920
Total income: ₹2,50,00,000
Basic tax (new regime): ≈ ₹72,30,000
Surcharge at 25% (capped): ₹72,30,000 × 25% = ₹18,07,500
Tax + surcharge: ₹90,37,500
Cess at 4%: ₹3,61,500
Total tax liability = ₹93,99,000
Comparison with old regime (37% surcharge above ₹5 crore — but here income is only ₹2.5 crore, so old regime surcharge is 25% same as new): the new regime is still better because of lower slab rates, lower ₹4L exemption, and ₹75K standard deduction.
For ultra-high-income individuals (above ₹5 crore total income), the new regime’s 25% surcharge cap gives a substantial advantage over the old regime’s 37% rate. For example, a taxpayer with ₹10 crore income saves roughly ₹3 crore in tax annually by staying in the new regime simply from the surcharge differential — ignoring the lower slab rates.
This is one of the primary reasons why ultra-HNI taxpayers in India have almost universally moved to the new regime from tax year 2024-25 onwards, and the trend will continue under the Income-tax Act, 2025. For a detailed regime comparison, see our tax planning new vs old regime guide.
CA V. Viswanathan: Surcharge is often overlooked in tax planning conversations because most taxpayers don’t earn above ₹50 lakh. But for those who do — senior executives, founders, doctors, senior partners in firms — surcharge planning materially moves the needle. The introduction of the 25% surcharge cap under the new regime was, in my view, the single biggest reason for the mass migration of HNIs from the old regime to the new regime from tax year 2023-24 onwards. Under the 2025 Act, this mass migration is complete — I no longer see ultra-HNI clients in the old regime unless they have exceptional deductions. For clients hovering around the ₹50 lakh or ₹1 crore boundary, I always check marginal relief — the ITR computes it automatically, but understanding the mechanism helps in timing bonuses, pre-paying expenses, or deferring capital gains to avoid crossing a boundary. One more point: the 15% cap on surcharge for listed equity capital gains is a quiet but powerful provision. A client with ₹3 crore total income including ₹1 crore from equity gains pays only 15% surcharge on the equity portion — not 25%. That’s a saving of 10% of the equity tax, which compounds meaningfully.
What is surcharge under the Income-tax Act, 2025?
An additional charge on the basic income-tax liability of high-income taxpayers. Computed as a percentage of the basic tax and applies in addition. Rates vary by taxpayer category and income level.
What are the surcharge rates for individuals under the new regime?
10% for ₹50L–₹1Cr, 15% for ₹1Cr–₹2Cr, 25% above ₹2Cr (capped). The old 37% rate has been abolished under the new regime.
What are the surcharge rates under the old regime?
10% for ₹50L–₹1Cr, 15% for ₹1Cr–₹2Cr, 25% for ₹2Cr–₹5Cr, 37% above ₹5Cr. The 37% rate continues only in the old regime.
What is health and education cess?
A uniform 4% charge on (income-tax + surcharge). Applies to all taxpayers without exception. Earmarked for Central Government health and education spending.
Is surcharge applicable on listed equity capital gains?
Yes, but capped at 15% on the equity capital gains portion regardless of total income. This cap was introduced in the July 2024 Budget and preserved under the 2025 Act.
What is marginal relief on surcharge?
A fairness mechanism ensuring that additional tax (including surcharge) on incremental income above a threshold does not exceed the incremental income itself. Applied automatically at each surcharge boundary.
What are surcharge rates for domestic companies?
7% for ₹1Cr–₹10Cr, 12% above ₹10Cr (regular companies). Flat 10% for concessional rate companies (Sec 115BAA/BAB equivalents).
What are surcharge rates for foreign companies?
2% for ₹1Cr–₹10Cr, 5% above ₹10Cr. Base corporate tax rate for foreign companies is 35% under the 2025 Act.
Is surcharge levied on firms and LLPs?
Yes. 12% above ₹1 crore. No surcharge below ₹1 crore. Cess of 4% applies on top.
How is surcharge computed — on tax or on income?
On the basic tax, not on the income. If basic tax is ₹30L and 15% surcharge applies, surcharge is ₹4.5L.
Does surcharge apply to VDA/cryptocurrency income?
Yes. The 30% flat VDA tax is further subject to surcharge and 4% cess. No reduced cap applies on VDA income.
Is surcharge applicable on cooperative societies?
Yes. 7% for ₹1Cr–₹10Cr, 12% above ₹10Cr. Concessional 22% regime: flat 10% surcharge.
Where is surcharge shown in the ITR?
Automatically computed in the tax computation schedule of the ITR. Pre-filled ITRs and offline utilities display surcharge and marginal relief as separate lines.
Was education cess rate different under the 1961 Act?
Earlier there was Education Cess of 2% and Secondary and Higher Education Cess of 1%. From tax year 2018-19, both were merged into a unified Health and Education Cess of 4%, preserved under the 2025 Act.
How can Virtual Auditor help with surcharge planning?
Regime selection, income timing, marginal relief, structuring of bonuses, perquisites, and capital gains. Call +91 99622 60333.
Related guides: Income-tax Act, 2025 — Complete Guide · Income Tax Slabs 2026-27 · Sec 87A Rebate · New vs Old Regime Planning · Corporate Tax Rates · Capital Gains