Marginal Tax Relief Explained: A Guide for Income Above ₹12 Lakh

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.

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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.