Surcharge on capital gains — the bracket thresholds that bite

Five bracket levels at total-income breakpoints of ₹50 lakh, ₹1 cr, ₹2 cr, ₹5 cr — but with a cap of 15% on capital gains income.

ProfitGuruOnline · Editorial Desk

5 min read Last reviewed 8 Jun 2026 3 primary sources

Surcharge is an additional levy on the income tax computed at the standard rate, applied at four total-income thresholds. For most middle-income mutual fund investors it is invisible. Above ₹50 lakh of total income — including capital gains realised during the year — it is the part of the tax bill people forget to model.

The brackets

Surcharge is applied to the income tax payable, not directly to income. Current bracket structure for individuals:

Total income	Surcharge on tax
Up to ₹50 lakh	Nil
₹50 lakh – ₹1 cr	10%
₹1 cr – ₹2 cr	15%
₹2 cr – ₹5 cr	25% (under old regime); capped at 15% on capital gains income
Above ₹5 cr	37% (under old regime); capped at 15% on capital gains income; capped at 25% under new regime

The cap on capital gains surcharge

An important relief: the surcharge applied to tax on long-term capital gains under Section 112A (equity LTCG) and Section 112 (other LTCG), and on STCG under Section 111A (equity STCG), is capped at 15%. So if your total income lands in the 25% or 37% surcharge bracket, the surcharge on the capital gains slice is still only 15%, while the slab-taxed portion carries the higher surcharge.

The surcharge cap recognised the practical issue that LTCG can spike in a single year (a property sale or major MF rebalancing) and push the entire tax bill into very high brackets without representing recurring income.

A worked example

Consider a salaried investor under the old regime with:

Salary income: ₹70,00,000.
Equity LTCG realised: ₹50,00,000 (after ₹1.25 lakh exemption: ₹48,75,000 taxable).
Total income: ₹1,18,75,000 — into the 15% surcharge bracket.

Tax computation:

Salary tax (slab, after deductions): say ₹17,00,000.
LTCG tax: ₹48,75,000 × 12.5% = ₹6,09,375.
Surcharge: 15% on the slab tax = ₹2,55,000; 15% on LTCG tax = ₹91,406.
Total before cess: ₹26,55,781.
Cess at 4%: ₹1,06,231.
Total tax: ₹27,62,012.

If the same investor's total income were ₹2,50,00,000 — into the 25% bracket — the slab tax surcharge would jump to 25% but the LTCG surcharge would stay capped at 15%.

Marginal relief

The Income Tax Act provides marginal relief at each surcharge breakpoint to prevent the cliff from being punitive. Crossing ₹50,00,001 of total income does not trigger surcharge on the entire base tax such that you net less than you would have at ₹49,99,999. The relief equals the excess of additional tax (with surcharge) over the additional income, ensuring net income does not actually drop. The mechanics are arithmetic-heavy; rely on the income-tax utility to apply it correctly.

Planning levers when capital gains push you into surcharge

Stagger MF redemptions across two financial years to keep each year below the next surcharge bracket.
Time large property sales away from years with already-high salary or business income.
Use the ₹1.25 lakh annual LTCG exemption deliberately every year so the eventual deferred gain is smaller.
Tax-loss harvesting against existing LTCG can pull your total income back below a surcharge bracket.

NRI considerations

The surcharge applies the same way to NRIs as residents, with the same brackets and the same 15% cap on capital gains surcharge. TDS deducted under Section 195 includes surcharge at the applicable bracket — final liability is reconciled at filing.