From April 1, 2025, individuals with taxable incomes up to Rs 12 lakh will not be required to pay any tax.
However, there can be individuals whose net taxable income exceeds Rs 12 lakh just by a small margin after claiming the maximum eligible deductions. How much does he/she have to pay? While income tax at Rs 12 lakh would be zero, however, on Rs 12.10 lakh income it could go up significantly to Rs 61,500 if no relief is available. Will he have to pay the entire tax or pay a lower tax by claiming marginal tax relief?
Also Read: New income tax slabs announced in Budget 2025
What is marginal relief and how does it help taxpayers to pay lower taxes on incomes just above Rs 12 lakh Suresh Surana, a Practising Chartered Accountant, says, “An individual can claim marginal tax relief if their taxable income is more than Rs 12 lakh. The marginal relief can be claimed even after a taxpayer claims all the relevant deductions available under the new tax regime.”
Marginal relief is available under section 87A for the new tax regime in the Income Tax Act. It is designed to provide relief to the taxpayers when income exceeds marginally the specified threshold, however, the corresponding tax is more than the marginal increase in income. Marginal relief is available in such a manner that the net amount payable as income tax shall not exceed the total amount as income tax on a total income of Rs 12 lakh by more than the amount of income exceeding Rs 12 lakh.
Sneha Padhiar, Partner, Bhuta Shah & Co LLP says, “An individual can claim marginal relief even if net taxable income exceeds Rs 12 Lakhs. The marginal relief can be computed by considering the income exceeding Rs 12 Lakhs as final tax liability irrespective of actual tax liability determined as per tax slabs. However, there is a cap up to which the marginal relief can be claimed. ”
How the marginal relief will work on income slightly above Rs 12 lakh Mr A is a salaried individual with a gross taxable income of Rs 14 lakh. He is eligible to claim a standard deduction of Rs 75,000 from his salary under the new tax regime. Further, he is eligible to claim a deduction under Section 80CCD (2) for the NPS contribution by an employer for Rs 1 lakh.
After claiming total deductions of Rs 1.75 lakh, his net taxable income is Rs 12,25,000. As the income exceeds Rs 25,000, Mr A will not be eligible for a tax rebate under Section 87A. He has to pay tax on income of Rs 12,25,000. The total tax liability will be Rs 63,750 (excluding cess). Mr A will be eligible to claim marginal relief. This is because a hike in income by Rs 25,000 in his income has led to more hike in the tax payable amount.
Due to marginal relief, Mr A will pay a tax of Rs 25,000 instead of Rs 63,750. On this tax amount of Rs 25
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