Budget 2024: Highest Surcharge Rate in Personal Income Tax has been Reduced from 37% to 25%

In the Budget 2024, the highest surcharge rate in personal income tax has been significantly reduced, dropping from 37% to 25%
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What exactly is this surcharge?

A surcharge is an extra income tax to be paid by the taxpayers earning a higher income i.e., beyond a certain limit. Put simply, this is for high net-worth individuals ( HNIs ). There are different rates of surcharge applicable to different taxpayers under the Income Tax Act, 1961.

Surcharge rates of 25% or 37%, will not be applicable to the income which is taxable under sections 111A ( Short Term Capital Gain on Shares ), 112A ( Long Term Capital Gain on Shares ), and 115AD ( Tax on income of Foreign Institutional Investors ). Therefore, the highest surcharge rate on the tax payable for such incomes will be 15%.

From Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain mentioned in Section 112 will be 15%. The surcharge rate for an Association of Persons ( AOP ) consisting entirely of companies will also be limited to 15%.

  • The Income tax slabs have been reduced from 6 to 5.
  • The basic exemption limit has been increased from Rs.2.5 Lakh to Rs.3 Lakh.
  • Under the new tax regime, the highest surcharge rate has been reduced from 37% to 25%.
  • ​Surcharge rates are not applicable to income which is taxable under Section 111A ( short term capital gain on shares ), Section 112A ( long term capital gain on shares ) and Section 115AD ( tax on income of foreign institutional investors ). 15% will be the highest rate of surcharge for tax payable for these incomes. ​​
  • ​​​Note that the maximum surcharge rate on taxes payable for capital gain or dividend income mentioned in Section 112 is 15% in AY 2023-2024. 15% is also the maximum surcharge rate applicable to an Association of Persons ( AoP ) composed entirely of various companies. ​​
  • ​​​Note that health and education cess at a 4% rate will get added to one’s income tax liability along with surcharge in every case. ​​
  • For salaried individuals and pensioners, a standard deduction of Rs.50,000 has been introduced beginning in fiscal year 2023-24.
  • The tax rebate under Section 87A has been increased from Rs.5 Lakh to Rs.7 Lakh of taxable income. The tax rebate has been increased from Rs.12,500 to Rs.25,000.
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