Surcharge for FY 2026‑27: ICAI suggests raising new tax regime threshold to ₹75 lakh; here’s why

While Sitharaman's announcements in the previous budget have immensely helped middle-income taxpayers, those earning above ₹50 lakh couldn't benefit much as there was no change in the income threshold for surcharge or in its rate.

As Budget 2026 approaches, the Institute of Chartered Accountants of India (ICAI) has proposed increasing the threshold income for surcharge to ₹75 lakh from ₹50 lakh under the new tax regime.

Explaining the reason for raising the surcharge threshold, ICAI said, "...while there has been significant rationalization in the rates of tax under the default tax regime, the threshold for levy of surcharge continues to remain at ₹50 lakh."

Surcharge is calculated as a percentage of income tax.

The threshold for the applicability of surcharge is based on the total income of the taxpayer, which would always be higher under the new tax regime due to the absence of various exemptions and deductions that are still available in the old tax regime.

Key concern

The ICAI said, "The concern is that the threshold for levy of surcharge is based on total income and not tax liability, even though surcharge is levied as a percentage of tax liability and not total income."

It further said that "there has been no rationalization in the threshold for levy of surcharge under the default tax regime. Even if the total income exceeds ₹50 lakh by say, ₹2 lakh, surcharge@10% would be attracted on the entire tax liability."

"Our suggestion is that surcharge threshold for individuals/HUFs under the default tax regime be increased from ₹50 lakhs to at least ₹75 lakhs," ICAI said.

Summary of ICAI's proposal on surcharge

Please note new tax regime is the default tax regime and is covered under Section 202 of the Income Tax Act, 2025.