Marginal Relief Rule: Earlier in the new tax regime, there was no tax on income up to Rs 7 lakh. Because under Income Tax Section 87A, a rebate of Rs 25,000 is available. Now the government has announced to make income up to Rs 12 lakh tax free.
Income tax: Some people are calling this budget historic for the middle class, some are saying that no one had anticipated such a big change in income tax. This announcement will increase the additional burden of Rs 1 lakh crore annually on the government treasury. But this Rs 1 lakh crore will be saved by the country’s taxpayers, which they will be able to spend on other things. The government is also assuming that this will increase liquidity in the system, because people will spend the money saved from tax.
Actually, the government has announced to make income up to Rs 12 lakh tax free in the budget. Earlier, income up to Rs 7 lakh was kept out of the scope of income tax. This change and exemption is proposed only for the New Tax Regime, that is, there is no change in the old tax regime. But now the way the government has proposed the new tax regime, it seems that the old tax regime is almost certain to end in the coming days.
No tax on income up to Rs 12 lakh
Before Budget 2025, there was no tax on income up to Rs 7 lakh in the new tax regime. Because under Income Tax Section 87A, a rebate of Rs 25,000 is available. Now the government has announced to make income up to Rs 12 lakh tax free, so the amount of rebate has also been increased to Rs 60,000.
Let us tell you, in Budget-2025, Finance Minister Nirmala Sitharaman has once again introduced a new income tax slab. In which 0-4 lakh income has been taxed at 0. Earlier this exemption was available on income of 0-3 lakh rupees.
New Tax Slab (2025)
0– Rs 4 lakh: 0%
4– Rs 8 lakh: 5%
8–12 lakh: 10%
12–16 lakh: 15%
16–20 lakh: 20%
20–24 lakh: 25%
Income above Rs 24 lakh: 30%
Under the new tax slab, income of more than Rs 4 lakh will now be taxed. But at the same time, under Income Tax Section 87A, a rebate of up to Rs 60,000 will be available. Because the government has announced to make income up to Rs 12 lakh tax free. According to the new tax slab, income tax of Rs 60,000 is due on an income of Rs 12 lakh. But under 87A, a rebate of Rs 60,000 will be available, due to which no income tax will have to be paid on income up to Rs 12 lakh. Not only this, in the new tax slab, the salaried class will also get the benefit of standard deduction of Rs 75,000. In such a situation, income up to Rs 12.75 lakh becomes completely tax free, that is, not even a single rupee of income tax will have to be paid.
But as soon as the income increases by even one rupee from 12.75 lakh, then the entire income comes under the purview of income tax. Now, for example, if someone’s income is Rs 12.76 lakh, then tax will have to be paid on the entire income. Whereas the income has increased by only 1 thousand rupees. According to the new tax slab, the income tax comes to Rs 62,556. Now you can say that this is absolutely wrong, because the taxable income increased by only 1 thousand rupees, but tax will have to be paid of Rs 62,556. Whereas there is no tax on income of Rs 12.75 lakh.
What is Marginal Relief?
To address the complaints of such people, the government has introduced Marginal Relief. Let us know about this rule… Under marginal relief, relief is given to those taxpayers whose incremental income becomes more taxable due to a slight increase, i.e. those whose incremental income is slightly more than the taxable income will get its direct benefit. But the benefit of marginal relief is available only up to a limited income. According to the rule, whatever is less between the incremental income and income tax of the taxpayers will be considered as income tax. (Incremental income is called increased income).
We are talking about the fact that paying income tax of Rs 62,556 on an income of Rs 12.76 lakh is unfair because there is no tax on income up to Rs 12.75 lakh, then why such a heavy tax on an increase of Rs 1,000? Then this is where the work of marginal relief starts. The rule of marginal relief says that whatever is less between incremental income and income tax will be payable as tax. Therefore, here the incremental income is only Rs 1,000, while the income tax is becoming Rs 62,556. In such a situation, only Rs 1,000 tax will have to be paid. Because this amount is less than the income tax slab.
Similarly, Rs 25,000 tax will have to be paid on an annual income of Rs 13 lakh, Rs 50 income tax will be payable on an annual income of Rs 13.25 lakh, because here also the benefit of marginal relief will be available. Under the New Tax Regime-2025, a total marginal benefit of up to Rs 60,000 will be given, and as soon as the margin between incremental income and income tax reduces to zero, that is, both amounts will become equal. After that, if the incremental income is even one rupee more, then full tax will have to be paid.
