Surcharge & Health and Education Cess on Income Tax (FY 2025-26)
Last verified: June 2026, against the Income Tax Act and Budget 2025 provisions cited below. Figures apply to FY 2025-26 (AY 2026-27). General information, not personal tax advice.
Your income tax bill is not just the slab tax. Two add-ons can increase it: a surcharge for high incomes and a 4% health and education cess on everyone. Here is how both work for FY 2025-26 — and the relief that stops them from being unfair at the thresholds.
Health and education cess — 4% for all
A 4% cess is added to your income tax (plus surcharge, if any), regardless of income level or regime. It funds health and education programmes. So tax of ₹1,00,000 becomes ₹1,04,000 after cess.
Surcharge — only for higher incomes
A surcharge applies as a percentage of your income tax once total income crosses ₹50 lakh:
| Total income | Surcharge (old regime) | Surcharge (new regime) |
|---|---|---|
| ₹50 lakh – ₹1 crore | 10% | 10% |
| ₹1 crore – ₹2 crore | 15% | 15% |
| ₹2 crore – ₹5 crore | 25% | 25% |
| Above ₹5 crore | 37% | 25% (capped) |
A key new-regime advantage: the top surcharge is capped at 25% (the 37% rate was removed), lowering the effective top tax rate for very high earners versus the old regime.
Surcharge on capital gains and dividends is capped at 15%
For capital gains taxed under Sections 111A/112A and for dividend income, the surcharge is capped at 15% even if your income is above ₹2 crore. This protects investors from the 25%/37% rates on that portion.
Marginal relief — the threshold protection
When your income just crosses a surcharge threshold (say ₹50 lakh), marginal relief ensures the extra tax-plus-surcharge does not exceed the income above the threshold. So earning ₹50,10,000 will not cost you a disproportionate jump in tax.
Order of calculation
Compute slab tax → add surcharge (if applicable) → apply marginal relief → add 4% cess on the total. The income tax calculator does this automatically.
Surcharge rates at a glance
| Total income | New regime | Old regime |
|---|---|---|
| ₹50 lakh – ₹1 crore | 10% | 10% |
| ₹1 – 2 crore | 15% | 15% |
| ₹2 – 5 crore | 25% | 25% |
| Above ₹5 crore | 25% (capped) | 37% |
Worked example: marginal relief at ₹50.5 lakh
New-regime tax on ₹50.5 lakh is ₹10,95,000; with 10% surcharge it would be ₹12,04,500. Tax on exactly ₹50 lakh is ₹10,80,000. The extra ₹50,000 of income cannot cost more than ₹50,000 of extra tax, so marginal relief cuts the bill to ₹11,30,000 — then 4% cess gives ₹11,75,200. Without relief, you would have paid ₹74,500 more.
What changes under the Income-tax Act, 2025
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Returns for FY 2025-26 (AY 2026-27) are still filed under the old Act, old section numbers and old forms. From tax year 2026-27 onwards, section numbers and many form numbers change — for example, Form 16 becomes Form 130, Forms 15G/15H merge into Form 121, Form 26QB becomes part of Form 141 and Form 10E becomes Form 39. The underlying rules discussed here were largely carried over; only the references change.
FAQs
Is the surcharge the same for FY 2026-27?
Yes. Budget 2026 did not change surcharge or cess rates.
Does everyone pay the cess?
Yes. The 4% health and education cess applies to all taxpayers, on tax plus any surcharge.
When does surcharge start?
Once total income exceeds ₹50 lakh, starting at 10% and rising with income.
Is the new regime better for very high earners?
On surcharge, yes — it caps the top surcharge at 25% instead of 37%, reducing the effective peak rate.
What is marginal relief?
A relief ensuring the additional tax when you just cross a surcharge threshold does not exceed the income above that threshold.
