The proceeds collected from a 'Surcharge' on income tax are distributed between the Central Government and the State Governments based on the Finance Commission's recommendations.

Both Cesses and Surcharges are levied by the Centre for specific purposes or on high-income groups, respectively. Crucially, the Constitution dictates that the proceeds from both Cesses and Surcharges are retained entirely by the Central Government and do not form part of the divisible pool of taxes shared with the States.