With the e-filing of Income Tax Return 2019-20 in full swing, assessees, whose level of income has marginally crossed the Rs 50 lakh limit, are quite worried about paying surcharge, choosing proper ITR Form and claiming the benefit of marginal relief.
Although the highest income tax slab in India is 30 per cent, so far, surcharge of 10 per cent are applicable on the tax payable before adding cess on taxable income between Rs 50 lakh and Rs 1 crore and 15 per cent surcharge on income over that level.
However, in the Union Budget 2019, the proposal has been made to apply surcharge on 4 income levels as given below:
(i) 10 per cent of such income-tax in case of a person having a total income exceeding Rs 50 lakh but not exceeding Rs 1 crore;
(ii) 15 per cent of such income-tax in case of a person having a total income exceeding Rs 1 crore but not exceeding Rs 2 crore;
(iii) 25 per cent of such income-tax in case of a person having a total income exceeding Rs 2 crore but
not exceeding Rs 5 crore; and
(iv) 35 per cent of such income-tax in case of a person having a total income exceeding Rs 5 crore.
Although the respective surcharge rates become applicable as soon as the income crosses the respective minimum level, but according to the concept of marginal relief, the amount of surcharge cannot exceed the actual income above the surcharge level.
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Moreover, determining applicability and calculation of marginal relief is a bit complicated and there are chances of getting Income Tax Notices are very much there.
Take for example, last year, the taxable income of Sanjay Verma (name changed), who works in a senior managerial position of a top PSU company, was Rs 51 lakh. Although, he has paid the surcharge after taking into account the marginal relief, the Income Tax Department is asking him to pay full amount of surcharge.
“In such cases – the taxpayer can reply that he has claimed the benefit of marginal relief as specified in the law and his demand would be removed,” said CA Karan Batra, Founder and CEO, CharteredClub.com, further explaining the calculation of marginal relief as given below.
However, Verma is eligible for marginal relief as the amount of surcharge is more than his extra income of Rs 1 lakh over the Rs 50 lakh limit.
Marginal Relief would be computed as follows:
This marginal relief would be subtracted from the surcharge on income tax and would be as follows:
So, the tax liability of Verma is Rs 14,54,875 and not Rs 1,64,250.
The above calculation of marginal relief is the most basic one and complecation increases when level of income marginally crosses the higher surcharge slabs.
When asked, which ITR Form to be filled and how to show the marginal relief in the ITR, Batra said, “Marginal Relief is auto calculated by the ITR Forms,” adding, “ITR 1 and ITR 4 cannot be used if income is more than Rs 50 Lakh. Moreover, for less than Rs 50 lakh income, surcharge is not applicable, so no provisions of auto calculation of marginal relief are there in these ITR Forms. Therefore in all surcharge cases, only ITR 2 & ITR 3 can be filed.”
So, the taxpayers having taxable income of more than Rs 50 lakh have to choose either ITR 2 or ITR 3 Form, depending on their source of income. For example, a salaried taxpayer having salary of more than Rs 50 lakh would file ITR 2, while a businessman or a professional having similar income would file ITR 3. In both the cases, the IT Return Preparation Software (either Excel Utilities or Java Utilities) would automatically provide the marginal relief, if applicable.