Just crossed Rs 8.5 lakh? You don't pay 10% surcharge

An individual whose annual income just about exceeds Rs 8.5 lakh could be forgiven for feeling like a cricket team involved in a one-day match where the Duckworth-Lewis system has come into play.
As in Duckworth-Lewis, calculations and possible scenarios abound for taxpayers as they try to figure out whether they fall in the ‘greater than Rs 8.5 lakh'' category. They would obviously like to restrict their income below this magic figure to escape the 10% surcharge.
There is some good news for taxpayers in this category, since they will in fact get marginal relief on the tax payable. In the current Budget, the existing surcharge of 5% has been dropped for all those with an income below Rs 8.5 lakh.
But for those who earn more than this, there will be a surcharge of 10%. The main worry for people with income just exceeding Rs 8.5 lakh is that, according to the rules, the surcharge is calculated as a percentage of total tax payable.
Thus, if you have to pay Rs 2.5 lakh as tax, the surcharge would be Rs 25,000, taking your total tax figure to Rs 2.75 lakh. However, there is relief for those who just cross the threshold. Assume that a person has an income of Rs 8.5 lakh. The tax payable on this sum comes to Rs 2,29,000.
But if the income is a mere Rs 10,000 higher at Rs 8.6 lakh, then, in the absence of any relief, the individual would take a severe hit. According to the rules, the surcharge will be levied on the tax calculated on Rs 8.6 lakh (that is, Rs 2.32 lakh), which works out to Rs 23,200, taking the total tax payable to Rs 2,55,200.
What this effectively translates into is that when the income of a person is Rs 10,000 more than Rs 8.5 lakh, his tax liability goes up by Rs 26,200, which is more than the rise in income.
To provide relief in such cases, there is a provision whereby the additional income tax payable — including surcharge on the excess of income over Rs 8.5 lakh — is restricted to the amount by which the income is more than Rs 8.5 lakh.
This means that the actual tax liability for the person with an income of Rs 8.6 lakh, as in our example above, will be Rs 2,39,000 (Rs 2,29,000 on Rs 8.5 lakh + Rs 10,000) and not Rs 2,55,200 as calculated normally.
According to the Budget fine print, this kind of marginal relief will be available till the income comes to around Rs 8.85 lakh as, till this stage, the additional tax payable will be higher than the additional income over Rs 8.5 lakh.
Beyond this, the surcharge would be calculated as 10% of the tax payable by the individual. Thus, for an income of Rs 9 lakh, the tax plus surcharge would come to Rs 2,68,400, and that for Rs 10 lakh it would be Rs 3,01,400.
The taxpayer also needs to note that the total income relevant for tax calculation here is the amount that is arrived at after considering various deductions like standard deduction, interest on housing loans, payment of medical insurance premium, contributions to pension plans and rebates for investment in certain specified instruments like PPF, NSC, life insurance premium, etc.