The 2025 Budget has proposed making normal income up to ₹12 lakh tax-free under the new tax regime for FY 2025-26. This significant development is a result of revised tax slabs and an enhanced rebate of ₹60,000 under Section 87A.
Since the announcement of these changes, there has been considerable confusion regarding the tax implications for incomes slightly exceeding the ₹12 lakh limit (after standard deductions for the salaried class). Fortunately, there is good news for resident individuals whose income marginally exceeds this threshold.
Marginal Relief for Income Slightly Above ₹12 Lakh
Under Section 115BAC(1A) of the Income Tax Act, marginal relief is available exclusively to resident individuals with taxable income just above ₹12 lakh. With marginal relief, taxpayers will not have to pay the full tax amount when their income slightly exceeds the tax-free threshold. This ensures a fair tax burden by preventing sudden spikes in tax liability for small income increases.
Example Scenarios:
Let’s examine how marginal relief applies to different income levels based on figures from the Central Board of Direct Taxes (CBDT):
| Taxable 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) |
Note: Marginal relief ceases to apply for incomes exceeding ₹12.75 lakh.
Proposed Income Tax Slabs for FY 2025-26 (AY 2026-27)
Below are the revised tax slabs under the new tax regime:
| Income Range (₹) | Tax Rate | Tax Calculation Formula |
| 0 to 4,00,000 | 0% | Nil |
| 4,00,001 to 8,00,000 | 5% | 5% of the amount exceeding ₹4,00,000 |
| 8,00,001 to 12,00,000 | 10% | ₹20,000 + 10% of the amount exceeding ₹8,00,000 |
| 12,00,001 to 16,00,000 | 15% | ₹60,000 + 15% of the amount exceeding ₹12,00,000 |
| 16,00,001 to 20,00,000 | 20% | ₹120,000 + 20% of the amount exceeding ₹16,00,000 |
| 20,00,001 to 24,00,000 | 25% | ₹200,000 + 25% of the amount exceeding ₹20,00,000 |
| 24,00,001 and above | 30% | ₹300,000 + 30% of the amount exceeding ₹24,00,000 |
Note: In addition to the applicable tax stated above, an Education Cess of 4% of the total Income Tax is payable by all taxpayers.
Surcharge: 10% of the Income Tax is payable where taxable income is more than Rs. 1 crore.
Illustrative Marginal Relief Tax Calculation
For an income of ₹12.10 lakh, the tax payable without marginal relief would be ₹61,500. However, due to a marginal relief of ₹51,500, the total tax payable is reduced to just ₹10,000.
How it works?For determining the marginal relief, tax liability without marginal relief will be compared with the amount exceeding the total income up to which rebate is available. In this case, that amount is ₹10,000 (₹12,10,000-₹12,00,000=10000).
Similarly, for total income of 1250000 tax payable is ₹50,000 ((₹12,50,000 ₹12,00,000=50000), and for 12,70,000 tax payable is ₹70,000 ((₹12,70,000-₹12,00,000=70000).
Conclusion
The introduction of marginal tax relief is a welcome move that ensures a smoother tax experience for individuals earning slightly above the tax-free limit. This policy change not only promotes fairness but also reduces the financial strain on taxpayers with moderate income increases.
Important related Post:
LIST OF INCOMES THAT ARE EXEMPTED FROM INCOME TAX UNDER THE NEW TAX REGIME
