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Surcharge | Meaning and Definition

What does surcharge mean?

A surcharge is an additional fee that is added to the price of a product or any service. It is actually added to the current tax, but it will not really be included in the price of the product or service. And because it is based on tax payable rather than income generated, it is also referred to as a tax on tax in the context of income tax. It is an added cost on income tax that is paid by taxpayers with a higher income in a certain fiscal year. Individuals, corporations, as well as companies can also apply for minor relief to avoid paying the surcharge.

How is a surcharge characterized?

A surcharge is often characterized as a checkout fee in the context of payment systems. When a merchant accepts payment by check, credit card, charge card, or debit card, they impose an additional fee. The amount is sufficient to cover the expense to the merchant of receiving that method of payment, such as a credit card company, as well as the bank’s merchant service fee.

Clear understanding of surcharge

Suppose an item costs Rs 100 and there is a tax of 30% and 10% surcharge so overall tax burden will be 33%. Those individuals who are earning income of more than 1 crore, a surcharge of 10% is imposed on the tax liability. 

However, in certain cases marginal relief is also provided as the tax liability after the surcharge results in an amount more than 1 crore.

Suppose 5% surcharge is imposed on domestic corporation if the net income ranging between 1 crore and 10 crore. If the net income exceeds 1 crore then of 10% is imposed. 

Surcharge at 2% is imposed on foreign corporation if their net income ranges between 1 crore and 10 crore and if it is more than 10 crore 5% is imposed.

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