By | June 12, 2025
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How To Avoid Surcharge In Income Tax

Avoiding or reducing surcharge in income tax legally requires careful financial planning and understanding the income slabs and exemptions under Indian tax law (assuming you’re referring to India — let me know if it’s another country).

💼 What Is Surcharge in Income Tax?

A surcharge is an additional tax on the base income tax payable by high-income individuals. It’s levied only if your income exceeds certain thresholds.

🔢 Surcharge Rates for Individuals (AY 2024–25)

Total IncomeSurcharge Rate
₹50 lakh – ₹1 crore10%
₹1 crore – ₹2 crore15%
₹2 crore – ₹5 crore (non-capital gains)25%
Above ₹5 crore (non-capital gains)37%
Capital gains (Section 111A, 112A, 115AD)Capped at 15%

🔔 Note: Under the new tax regime, maximum surcharge is capped at 25%.

✅ How to Avoid or Reduce Surcharge Legally

1. 📉 Keep Total Taxable Income Below Surcharge Thresholds

  • Use exemptions and deductions to reduce taxable income below ₹50 lakh (or other thresholds).
  • Claim:
    • Section 80C (up to ₹1.5 lakh)
    • 80D (health insurance)
    • 80G (donations)
    • Home loan interest (Section 24)
    • NPS (additional ₹50,000 under 80CCD(1B))

2. 🏦 Opt for Capital Gains (if applicable)

  • Long-term capital gains (LTCG) on shares/mutual funds under Section 112A attract maximum 15% surcharge, even if your total income is ₹5 crore+.
  • Consider restructuring income (if legal and possible) to come through such sources.

3. 💰 Use Hindu Undivided Family (HUF) or Family Trusts

  • Dividing income among entities helps prevent crossing surcharge slabs.
  • You can:
    • Create an HUF to split business income or asset income.
    • Set up family trusts for passive income streams (requires planning and legal support).

4. 💼 Split Income with Family Members

  • Shift investments in the name of spouse or adult children (who have lower/no income).
  • Use gifting rules wisely (no tax on gifts to spouse, children, parents).

5. 🧾 Choose Between Old and New Tax Regimes

  • Evaluate both regimes. The new regime (Section 115BAC) removes many deductions but offers lower slab rates and capped surcharge.

6. 🏘️ Use Tax-Exempt Sources of Income

  • Exempt incomes include:
    • Agriculture income
    • Interest from PPF, EPF
    • Maturity proceeds from tax-free life insurance policies (Section 10(10D))
    • Gifts under ₹50,000 (with conditions)

7. 📑 Advance Tax Planning & Filing

  • File returns timely and correctly to avoid penalties/scrutiny.
  • Use a qualified CA or tax advisor if your income approaches ₹50L or higher.

🧠 Example:

If your income is ₹52 lakh:

  • Use deductions (e.g., ₹2 lakh) to bring it under ₹50 lakh and avoid 10% surcharge.
  • The savings in tax can be significant, not just marginal.