Surcharge and Marginal Relief for Tax Year 2026-27, Worked
- New regime surcharge rates
- How marginal relief works
- Worked example 1: total income of ₹51 lakh
- Worked example 2: total income of ₹1.01 crore
- Where relief runs out
- Worked example 3: the 15% cap on capital gains
- Surcharge on a buyback by a promoter
- Checklist before you compute
- Where this fits
For tax year 2026-27, an individual under the new tax regime pays a surcharge on income tax once total income exceeds ₹50 lakh. The rates are 10% above ₹50 lakh, 15% above ₹1 crore and 25% above ₹2 crore. On tax attributable to capital gains and dividends the surcharge is capped at 15%. Marginal relief ensures that crossing a threshold never costs more in tax and surcharge than the extra income itself. For example, at a total income of ₹51 lakh it cuts the bill by ₹41,000. The 4% Health and Education Cess is then charged on tax plus surcharge.
These rules are in section 3 of the Finance Act, 2026, which fixes the surcharge for tax charged under the Income-tax Act, 2025.
New regime surcharge rates
Section 3(4) of the Finance Act, 2026, Table Sl. No. 10, applies to individuals, HUFs, associations of persons and bodies of individuals taxed under section 202 (the new regime):
| Total income | Surcharge on income tax |
|---|---|
| Up to ₹50,00,000 | Nil |
| Above ₹50 lakh up to ₹1 crore | 10% |
| Above ₹1 crore up to ₹2 crore | 15% |
| Above ₹2 crore, where income excluding dividends and capital gains under sections 196, 197 and 198 also exceeds ₹2 crore | 25% |
| Above ₹2 crore only because of dividends or those capital gains | 15% |
In every case, the surcharge on the part of tax that relates to dividend income or capital gains under sections 196, 197 and 198 cannot exceed 15%. For the new regime there is no 37% rate.
Old regime. Paragraph F of Part I-B of the First Schedule keeps the higher structure for individuals who opt out. The rates are 10%, 15% and 25% at the same thresholds, and 37% where income, excluding dividends and those capital gains, exceeds ₹5 crore. The same 15% cap applies to dividends and capital gains.
How marginal relief works
Section 3(5) of the Finance Act, 2026 sets a ceiling at each threshold, using the formula Tn = Rn + Sn:
- Rn is the income tax plus any surcharge that would be payable on income exactly equal to the threshold;
- Sn is your total income minus the threshold;
- your income tax plus surcharge cannot exceed Tn.
For the new regime the thresholds are ₹50 lakh, ₹1 crore and ₹2 crore. Cess is added after the ceiling is applied. To apply the ceiling to your own mix of slab income, dividends and capital gains, use the surcharge and marginal relief calculator.
Worked example 1: total income of ₹51 lakh
A resident individual under the new regime, all income taxed at slab rates:
| Step | Computation | Amount |
|---|---|---|
| Tax on ₹51,00,000 at section 202(1) rates | ₹3,00,000 on the first ₹24 lakh, plus 30% of ₹27 lakh | ₹11,10,000 |
| Surcharge at 10% | 10% of ₹11,10,000 | ₹1,11,000 |
| Tax plus surcharge before relief | ₹12,21,000 | |
| Rn: tax on exactly ₹50 lakh, no surcharge | ₹3,00,000 plus 30% of ₹26 lakh | ₹10,80,000 |
| Sn: income above ₹50 lakh | ₹1,00,000 | |
| Ceiling Tn | ₹10,80,000 + ₹1,00,000 | ₹11,80,000 |
| Marginal relief | ₹12,21,000 − ₹11,80,000 | ₹41,000 |
| Cess at 4% | 4% of ₹11,80,000 | ₹47,200 |
| Total tax | ₹12,27,200 |
Without marginal relief, the extra ₹1 lakh of income would have added ₹1,41,000 to tax and surcharge. With relief, the addition is exactly ₹1,00,000.
Worked example 2: total income of ₹1.01 crore
| Step | Computation | Amount |
|---|---|---|
| Tax on ₹1,01,00,000 | ₹3,00,000 plus 30% of ₹77 lakh | ₹26,10,000 |
| Surcharge at 15% | 15% of ₹26,10,000 | ₹3,91,500 |
| Tax plus surcharge before relief | ₹30,01,500 | |
| Rn: tax on ₹1 crore (₹25,80,000) plus 10% surcharge | ₹25,80,000 × 1.10 | ₹28,38,000 |
| Ceiling Tn | ₹28,38,000 + ₹1,00,000 | ₹29,38,000 |
| Marginal relief | ₹30,01,500 − ₹29,38,000 | ₹63,500 |
| Cess at 4% | 4% of ₹29,38,000 | ₹1,17,520 |
| Total tax | ₹30,55,520 |
Where relief runs out
Relief shrinks as income rises past a threshold, because each extra rupee attracts slab tax plus surcharge but only raises the ceiling by one rupee. For a person whose income is all taxed at the 30% slab, our computation gives these break-even points:
| Threshold | Marginal relief available up to a total income of about |
|---|---|
| ₹50 lakh | ₹51,61,194 |
| ₹1 crore | ₹1,01,96,947 |
At ₹52 lakh, for example, tax plus surcharge is ₹12,54,000 against a ceiling of ₹12,80,000, so no relief is due. At ₹1.02 crore the figures are ₹30,36,000 against ₹30,38,000. These break-even points apply only to income taxed at slab rates; capital gains at special rates change the arithmetic.
Worked example 3: the 15% cap on capital gains
A resident individual under the new regime has ₹3 crore of salary and business income. He also has ₹50 lakh of long-term capital gains on listed equity shares taxed under section 198.
| Component | Tax | Surcharge rate | Surcharge |
|---|---|---|---|
| Slab tax on ₹3 crore | ₹85,80,000 | 25% (income excluding capital gains exceeds ₹2 crore) | ₹21,45,000 |
| Section 198: 12.5% of (₹50,00,000 − ₹1,25,000) | ₹6,09,375 | 15% cap | ₹91,406 |
| Tax plus surcharge | ₹1,14,25,781, plus cess of ₹4,57,031 | ||
If instead his other income were ₹1.9 crore and his section 198 gains ₹60 lakh, total income would be ₹2.5 crore. Income excluding the gains would not exceed ₹2 crore, so the whole surcharge would be at 15%, not 25%.
Surcharge on a buyback by a promoter
Section 3(6) of the Finance Act, 2026 applies a flat 12% surcharge to tax charged under section 69 of the 2025 Act. This covers the additional tax paid by promoters on buybacks.
Checklist before you compute
- Start from total income after deductions, not gross salary.
- Separate tax on dividends and capital gains under sections 196, 197 and 198, because the 15% cap applies to that part.
- Apply marginal relief at the nearest threshold below your income.
- Add 4% cess last, on tax plus surcharge after relief.
- Remember the section 156 rebate is irrelevant at these incomes; it stops well below ₹13 lakh.
Where this fits
- The slabs these examples use: new regime slabs for tax year 2026-27
- Run your own figures: income tax calculator
- Equity gains in detail: tax on equity shares and equity funds, 2026-27
- Choosing a regime at high income: old vs new tax regime
Sources. Finance Act, 2026, section 3(1), (4), (5), (6) and (15), and First Schedule Part I-B, Paragraph F, Gazette of India, 30 March 2026. Income-tax Act, 2025, sections 196, 197, 198 and 202, Gazette of India, 21 August 2025.