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Feeling disheartened that while those with taxable income up to Rs 12 lakh (after the Rs 75,000 standard deduction) pay zero tax, you have to cough up a hefty amount just because you earn a little more?
Don't worry— marginal relief is here to ensure you don't end up paying disproportionately high taxes just because your income slightly exceeds Rs 12 lakh.
What's happening at Rs 12 lakh?
The Union Budget 2025-26 has increased the Section 87A rebate to Rs 60,000, making taxable income up to Rs 12 lakh completely tax-free under the new tax regime. However, if your taxable income crosses Rs 12 lakh—even by a small amount—you lose this rebate entirely, leading to a significant increase in tax liability.
That's where marginal relief comes in. It ensures that if your income just slightly exceeds Rs 12 lakh, your tax doesn't skyrocket unfairly.
How does marginal relief work?
Marginal relief prevents an unfair tax burden for those whose income slightly exceeds Rs 12 lakh.
Let's see how marginal relief can come to the rescue.
Case 1: Without marginal relief (Income: Rs 12.05 lakh)
Suppose your taxable income (after the Rs 75,000 standard deduction) is Rs 12.05 lakh. Your tax liability will be Rs 60,750, as you can see below.
| Income Slab (Rs) | Tax Rate | Tax Amount (Rs) |
|---|---|---|
| 0 - 4,00,000 | 0% | 0 |
| 4,00,001 - 8,00,000 | 5% | 20000 |
| 8,00,001 - 12,00,000 | 10% | 40000 |
| 12,00,001 - 12,05,000 | 15% | 750 |
| Total Tax Without Marginal Relief: | Rs 60,750 | |
| (No rebate as income exceeds Rs 12 lakh) |
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Case 2: With marginal relief
-
Your income exceeds Rs 12 lakh by Rs 5,000.
-
Marginal relief ensures that your total tax liability does not exceed Rs 5,000 (the excess amount over Rs 12 lakh).
- Tax payable = Rs 5,000 instead of Rs 60,750.
Margin relief is beneficial: A quick tax table
| Taxable income after standard deduction | Tax without marginal relief (Rs) | Tax with marginal relief (Rs) | Savings (Rs) |
|---|---|---|---|
| Rs 12,01,000 | 60,150 | 1,000 | 59,150 |
| Rs 12,03,000 | 60,450 | 3,000 | 57,450 |
| Rs 12,05,000 | 60,750 | 5,000 | 55,750 |
| Rs 12,10,000 | 61,500 | 10,000 | 51,500 |
| Rs 12,15,000 | 62,250 | 15,000 | 47,250 |
| Rs 12,25,000 | 63,750 | 25,000 | 38,750 |
| Rs 12,50,000 | 67,500 | 50,000 | 17,500 |
| Rs 12,60,000 | 69,000 | 60,000 | 9,000 |
| Rs 12,70,000 | 70,500 | 70,000 | 500 |
As seen above, marginal relief applies only for those earning slightly over Rs 12 lakh, ensuring they pay only the extra income as tax, instead of facing a steep tax jump.
Final thoughts
If your salary is just over Rs 12 lakh, marginal relief ensures you don't pay an excessive amount of tax. While this concept isn't new, many taxpayers may not be aware of how it works in their favour.
So, the next time you get a small salary hike pushing you just past Rs 12 lakh, you can breathe easy. Marginal relief has got your back!
Also read: How Budget 2025 impacts your money next financial year
This article was originally published on February 05, 2025.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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