Income Tax Calculations: Taxpayers while filing their income tax return (ITR) get the benefit of marginal tax relief, where if their income is slightly above the tax-free income limit, they are taxed not more than the incremental income. It will apply to taxpayers who will file their income tax return for the financial year 2025-26. The new tax regime for FY25-26 offers a tax-free income of Rs 12,00,000 to non-salaried individuals.
For salaried individuals, the same limit is Rs 12,75,000, where Rs 75,000 is the standard deduction under Section 87A of the Income Tax Act.
But what if your salary is slightly above the tax-free limit?
What if you are earning Rs 12,90,000 a year from your salary?
Will you be taxed on Rs 12,90,000 or on just Rs 15,000?
Know how marginal relief works and may benefit you.
How does marginal relief work?
Marginal relief is for those taxpayers who have their income slightly above the tax-free limit of income.
In marginal relief, taxpayers with income slightly above the tax-free limit cannot pay more tax than their incremental income.
Let’s take the example of a salaried-class taxpayer with Rs 13,00,000 income. As per the tax slabs in the new tax regime, they will be taxed like this-
0 to Rs 4,00,000- nil
Rs 4,00,001 to Rs 8,00,000- Rs 20,000
Rs 8,00,001 to Rs 12,00,000- Rs 40,000
Rs 12,00,001 to Rs 13,00,000- Rs 15,000
Total= Rs 75,000+ 4 per cent of Rs 75,000 (education cess)= Rs 78,000
But since the incremental income is just Rs 25,000 more than the tax-free limit, and Rs 25,000 is less than the actual income tax of Rs 78,000, the taxpayer will have to pay Rs 25,000 plus 4 per cent of Rs 25,000= Rs 26,000 tax
What will be tax on Rs 12,90,000 then?
As per the slabs, it will be Rs 73,500+ 4 per cent of Rs 73,500 (cess).
But since the incremental income is just Rs 15,000, which is less than Rs 73,500, the taxpayer will pay Rs 15,000+ 4 per cent of Rs 15,000 as tax after marginal tax relief.
Hence, in this case, the total tax liability will be Rs 15,600.
