Harshvardhan Mishra
The Union Budget 2025 has brought significant revisions to India’s income tax structure under the new regime, ensuring fair taxation for individuals earning beyond ₹12 lakh per annum. One crucial aspect is Marginal Tax Relief, a mechanism designed to prevent excessive tax burdens on those whose income slightly exceeds specific thresholds.
New Income Tax Slabs for FY 2025-26
| Income Range | Tax Rate |
|---|---|
| Up to ₹4 lakh | 0% (No Tax) |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Additionally, individuals earning up to ₹12 lakh can avail of the Section 87A rebate, reducing their tax burden. However, for those earning slightly above ₹12 lakh, Marginal Tax Relief comes into play to ensure a fair tax transition.
What is Marginal Tax Relief?
Marginal Tax Relief (MTR) is a provision that prevents an unjustifiably high tax increase when an individual’s income slightly surpasses a tax threshold. This ensures that the additional tax does not exceed the extra income earned.
Let’s examine the tax liability for incomes of ₹12.1 lakh, ₹12.5 lakh, and ₹12.7 lakh, both with and without the benefit of marginal relief, as per CBDT guidelines.
Marginal relief is applicable only for incomes up to ₹12.75 lakh. Beyond this threshold, regular tax calculations apply.
| Income (₹) | Tax Without Marginal Relief (₹) | Tax With Marginal Relief (₹) |
|---|---|---|
| 12,10,000 | 61,500 | 10,000 |
| 12,50,000 | 67,500 | 50,000 |
| 12,70,000 | 70,500 | 70,000 |
| 12,75,000 | 71,250 | 71,250 (No Marginal Relief) |
How is Marginal Relief Calculated?
Let’s break it down with an example of an individual earning ₹12.1 lakh annually.
Step 1: Tax Calculation Without Marginal Relief
Without applying marginal relief, the tax liability on ₹12.1 lakh would be ₹61,500, calculated as follows:
| Income Range | Tax Rate | Tax Amount (₹) |
|---|---|---|
| ₹0 – ₹4,00,000 | 0% | ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 | 10% | ₹40,000 |
| ₹12,00,001 – ₹12,10,000 | 15% | ₹1,500 |
| Total Tax | ₹61,500 |
Step 2: Considering the Rebate
Under the new tax regime, individuals earning up to ₹12 lakh are eligible for a rebate of ₹60,000, effectively reducing their tax liability to zero.
Step 3: Determining Marginal Relief
Marginal relief ensures that the additional tax paid does not exceed the extra income over the rebate threshold.
- The excess income over ₹12 lakh = ₹10,000 (₹12,10,000 – ₹12,00,000)
- The tax without marginal relief = ₹61,500
- Marginal relief = ₹61,500 – ₹10,000 = ₹51,500
Final Tax Payable After Marginal Relief
With marginal relief applied, the total tax payable on ₹12.1 lakh is ₹10,000 instead of ₹61,500.
Key Insight: If your income slightly exceeds ₹12 lakh, Marginal Tax Relief ensures that you don’t pay disproportionately high taxes.
Who Benefits from Marginal Tax Relief?
✔️ Individuals earning between ₹12 lakh and ₹12.75 lakh
✔️ Taxpayers just crossing a tax slab, avoiding excessive tax jumps
✔️ Those not eligible for Section 87A rebate but needing transition relief
Note: If your income is above ₹12.75 lakh, you won’t be eligible for Marginal Tax Relief.
Conclusion
Marginal Tax Relief is a critical tool for ensuring a smooth and fair taxation system. It safeguards middle-income earners from abrupt tax hikes when they cross specific thresholds. By understanding these rules and tax slabs, individuals can plan their finances efficiently and avoid unnecessary tax burdens.
Disclaimer: This article is for informational purposes only and should not be considered tax advice. Please consult a tax professional or refer to official government sources for accurate tax calculations and compliance.
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