Differences in surcharge rates between New & Old Tax Regime

Differences in surcharge rates between New Tax Regime & Old Tax Regime

The new regime provides significant tax savings for high-income taxpayers, especially those earning above INR 5 crore or with capital gains/dividend income. Taxpayers should still evaluate whether the lower surcharge outweighs the loss of deductions before opting for the new regime.

Key Differences in Surcharge Rates:

New Tax Regime (Section 115BAC(1A)): Surcharge applies to income exceeding ₹50 lakh as follows:

Total Income	Surcharge Rate
₹50 lakh – ₹1 crore	10%
₹1 crore – ₹2 crore	15%
₹2 crore+ (Excluding capital gains & dividends)	25%
₹2 crore+ (Including capital gains & dividends under Sections 111A, 112, 112A)	15%

Maximum surcharge is capped at 25%. For capital gains & dividend income, surcharge is capped at 15%. AOPs with only company members under 115BAC(1A) are subject to a maximum surcharge of 15%.

Old Tax Regime : Surcharge applies as follows:

Total Income	Surcharge Rate
₹50 lakh – ₹1 crore	10%
₹1 crore – ₹2 crore	15%
₹2 crore – ₹5 crore	25%
₹5 crore+	37%

The highest surcharge rate of 37% applies only in the old regime. No cap on surcharge for capital gains and dividends (except the general limits above).

Major Differences in Surcharge Rates

key differences in surcharge rates between the New Tax Regime (Section 115BAC) and the Old Tax Regime significantly impact high-income taxpayers:

Income Slab	Surcharge (Old Regime)	Surcharge (New Regime – 115BAC(1A))
₹50 lakh – ₹1 crore	10%	10%
₹1 crore – ₹2 crore	15%	15%
₹2 crore – ₹5 crore	25%	25%
Above ₹5 crore	37%	25% (Capped)

• Cap on Maximum Surcharge (25%) in New Regime: The highest surcharge (37%) on income above INR 5 crore is removed in the new tax regime. This benefits ultra-high-income individuals who were paying 42.74% effective tax (including cess) under the old regime. Under the new regime, the maximum effective tax rate is 39% (including 4% cess).
• Surcharge on Capital Gains & Dividends Limited to 15% in New Regime: For income under Sections 111A (STCG on equities), 112 (LTCG on non-equity assets), and 112A (LTCG on equities), the surcharge is capped at 15% in the new regime. In contrast, the old regime applies higher surcharges (25% or 37%) for taxpayers above ₹2 crore.

• No Change for Companies, LLPs & Firms: The revised surcharge rates only apply to individuals, HUFs, AOPs, and BOIs under the new tax regime. Firms, LLPs, and companies continue with the existing surcharge structure.

• This makes the new tax regime more attractive for high-net-worth individuals with capital gains or dividends, but taxpayers should still evaluate the loss of exemptions/deductions before opting in.

• Major Tax Relief for High Earners ( INR 5 Cr+) in the New Regime : The old regime imposed a 37% surcharge, pushing the effective tax rate to 42.74%. The new regime caps surcharge at 25%, reducing the maximum effective tax rate to 39%. High-income earners (INR 5 crore+) benefit significantly under the new regime due to the removal of the 37% surcharge. Those earning capital gains and dividend income under the new regime pay lower surcharges (max 15%). The old regime imposed a 37% surcharge, pushing the effective tax rate to 42.74%. The new regime caps surcharge at 25%, reducing the maximum effective tax rate to 39%. However, for those earning between INR 50 lakh to INR 5 crore, the surcharge rates remain unchanged in both regimes.
• Lower Surcharge on Capital Gains & Dividends in the New Regime : In the new regime, capital gains & dividends u/s 111A, 112, & 112A face a maximum surcharge of 15%. In the old regime, taxpayers earning INR 2 Cr+ could pay 25% or 37% surcharge on such income.
• Marginal Relief Applies in Both Regimes : Ensures that a small increase in income doesn’t result in a disproportionate tax burden due to surcharge.
• 4% Health & Education Cess is Levied in Both Regimes : Cess is calculated on the total tax, including surcharge.