Under the new tax regime for FY 2025-26, normal income up to ₹12 lakhs will be tax-free due to marginal tax relief. This became possible only due to revised tax slabs and an enhanced rebate of ₹60,000 under section 87A.
However, there has been a lot of confusion about how the tax will apply to incomes slightly above ₹12 lakhs after the announcement of the revised tax regime for FY 2025-26. For example, what happens if a person is earning ₹12.5 lakhs or ₹12.7 lakhs? The Central Board of Direct Taxes (CBDT) has cleared the doubts, saying that the total income till which the marginal relief is available is for ₹12.7 lakhs of income.
Marginal tax relief provided by the income tax department applies when a person's income is slightly above the tax-free limit. For FY 2025-26, the tax-free income limit is ₹12 lakhs. With marginal relief, a taxpayer will not have to pay any tax when his or her income is just a little over ₹12 lakhs.
According to CBDT, we'll see how much tax one has to pay with or without marginal relief on incomes of ₹12 lakhs, ₹12.5 lakhs, and ₹12.7 lakhs. However, the marginal relief will not apply to income of ₹12.75 lakhs or more.
|
Income (₹) |
Tax payable without marginal relief (₹) |
Tax payable 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] |
Let's understand how marginal relief is calculated with an example - income of ₹12.1 lakhs. The tax liability on ₹12.1 lakhs income without marginal relief will be ₹61,500 and it will be calculated as follows:
|
Income Range (₹) |
Tax Rate (%) |
Tax Amount (₹) |
|
₹0 to ₹4,00,000 |
0% |
₹0 |
|
₹4,00,001 to ₹8,00,000 |
5% |
₹20,000 |
|
₹8,00,001 to ₹12,00,000 |
10% |
₹40,000 |
|
₹12,00,001 to ₹12,10,000 |
15% |
₹1500 |
|
Total Tax |
₹61,500 |
However, tax on income up to ₹12 lakhs will be zero because of the proposed rebate of ₹60,000.
For determining the marginal relief, tax liability without marginal relief will be compared by the amount exceeding the total income up to which rebate is available. In this case, that amount will be ₹10,000 (₹12,10,000 - ₹12,00,000).
According to CBDT, the marginal relief in this case will be ₹51,500. This can be calculated by deducting income over ₹12 lakhs from the total tax liability (₹61,500 - ₹10,000). Therefore, due to the marginal relief of ₹51,500, the total tax payable on income of ₹12.1 lakhs will be ₹10,000 only.
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