Will you pay Rs 61,500 as income tax on Rs 12.10 lakh income? Know how marginal relief comes into play However, there can be taxpayers whose taxable income exceeds Rs 12 lakh, even after claiming all the eligible deductions. Will they have to pay higher tax?
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?
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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.
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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 25,000, cess at 4% will be added as well. His final tax liability will be Rs 26,000 (including cess).
Total IncomeTax as per proposed slabs (Without Marginal Relief) (a) Income exceeding Rs 12 Lakhs (b)Rebate available (c) = (a) – (b)Actual liability (a) – (c) 12,00,00060,000NIL60,000NIL12,10,00061,50010,00051,50010,00012,50,00067,50050,00017,50050,00012,70,00070,50070,00050070,0001270588 (Breakeven)70,58870,588NIL70,58812,75,00071,25075,000NIL71,250Source: Bhuta Shah & Co. Tax calculations without including cess at 4%
According to the table above, individual taxpayers with taxable incomes of Rs 12,10,000 will save around Rs 51,500 by paying a tax of Rs 10,000. This is due to the marginal relief available, which decreases as taxable income increases.
Also Read: How much tax salaried will save at Rs 15 lakh, Rs 20 lakh incomes
Marginal income is available till this income level only
However, marginal relief on tax payable is available to a certain income level only. Post that, an individual will be required to pay full tax on their income as calculated by the new income tax slabs under the new tax regime.Padhiar from Bhuta Shah & Co LLP says, "Taxpayers can claim marginal relief up to a total income of Rs 12,70,587 (i.e., Rs 12,70,588 being the break-even point where total tax liability as per slab equates with the income exceeding Rs 12 Lakhs)."
Surana says, "The total income till which marginal relief is available is near about Rs 12,75,000. If the net taxable income exceeds this level, then the individual will not be eligible for marginal relief."
Which category of taxpayers are not eligible for marginal relief?
Taxpayers should remember that marginal relief benefits are not available to all categories of taxpayers. Surana says, "In the new tax regime under Section 115BAC of the Income Tax Act, marginal relief is available to the resident individuals having income marginally above Rs 12 lakh. Taxpayers other than resident individuals, such as non-residents, HUFs, etc, are not eligible for marginal relief benefit."Deductions available under new tax regime to reduce taxable incomes
The new tax regime offers two deductions to the salaried individuals. An individual can claim a standard deduction of Rs 75,000 from salary under the new tax regime. Further, salaried individuals with annual incomes up to Rs 13.70 lakh can pay zero tax by claiming deductions under Section 80CCD (2). A salaried can claim this deduction if an employer deposits money on his/her behalf in the Tier-I NPS account. A maximum deduction of 14% of salary can be claimed as a deduction under Section 80CCD (2).Also Read: 2 deductions that help salaried to pay zero tax in new tax regime
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This story originally appeared on: India Times - Author:Faqs of Insurances
