Marginal Income Tax Relief FY 2025:Guide to Savings, Calculations, and Key Updates
What Is Marginal Tax Relief?
The Indian government’s Budget 2025 has introduced transformative changes to the income tax structure, particularly through marginal income tax relief for individuals earning slightly above the ₹12 lakh threshold under the new tax regime.
This relief ensures taxpayers aren’t unfairly penalized for incomes marginally exceeding the tax-free limit, promoting fairness and boosting disposable income for the middle class. Let’s dive into the mechanics, eligibility, and real-world examples of how this relief works.
Also Read-Zero Income Tax on ₹13.7 Lakh Salary
What Is Marginal Tax Relief?
Marginal relief is a provision to protect taxpayers from abrupt tax spikes when their income exceeds the tax-free threshold (₹12 lakh under the new regime). Designed for fairness, it ensures the additional tax paid on income above ₹12 lakh does not exceed the surplus amount earned. For example, if you earn ₹12.1 lakh, your tax liability after relief will only reflect the ₹10,000 excess—not the full slab rate.
This relief applies to incomes up to ₹12.75 lakh. Beyond this limit, standard tax rates apply. Salaried individuals benefit further from a ₹75,000 standard deduction, raising their effective tax-free income to ₹12.75 lakh.
- Tax-free limit: ₹12 lakh (₹12.75 lakh for salaried individuals, including a ₹75,000 standard deduction).
- Marginal relief cap: Available up to ₹12.75 lakh. Beyond this, full slab rates apply.
- Goal: Prevent a sudden spike in tax liability for middle-income earners.
How Marginal Relief Works: Calculations and Examples.
The Central Board of Direct Taxes (CBDT) clarified that relief is calculated by comparing the tax payable under standard slab rates with the incremental income above ₹12 lakh.
Tax Liability With vs. Without Marginal Relief (FY 2025-26)
| Income (₹) | Tax Without Relief (₹) | Tax With Relief (₹) | Relief Amount (₹) |
|---|---|---|---|
| 12,10,000 | 61,500 | 10,000 | 51,500 |
| 12,50,000 | 67,500 | 50,000 | 17,500 |
| 12,70,000 | 70,500 | 70,000 | 500 |
| 12,75,000 | 71,250 | 71,250 | 0 (Relief ends here) |
How It’s Calculated:
- Compute tax on total income using slab rates.
- Deduct the excess income (amount above ₹12 lakh) from the tax liability.
- The lower value becomes the final tax payable.
Example 1: Income of ₹12.1 Lakh
- Tax without relief: ₹61,500 (calculated using slab rates: 5% on ₹4–8 lakh, 10% on ₹8–12 lakh, and 15% on the remaining ₹10,000).
- Relief calculation:
- Excess income over ₹12 lakh = ₹10,000.
- Relief = Tax liability without relief (₹61,500) – Excess income (₹10,000) = ₹51,500.
- Final tax payable: ₹10,000.
Example 2: Income of ₹12.5 Lakh
- Tax without relief: ₹67,500.
- Relief: ₹17,500 (₹67,500 – ₹50,000).
- Final tax payable: ₹50,000.
The Bigger Picture: Budget 2025 Reforms.
New Tax Slabs:
| Income (₹) | Tax Rate |
|---|---|
| 0–4L | 0% |
| 4–8L | 5% |
| 8–12L | 10% |
| 12–16L | 15% |
| 16–20L | 20% |
| 20–24L | 25% |
| Above 24L | 30% |
Rebate Enhancements: Section 87A rebate raised to ₹60,000 for incomes ≤₹12L.
Who Benefits from Marginal Relief?
- Salaried Individuals: The ₹75,000 standard deduction raises the effective tax-free limit to ₹12.75 lakh.
- Non-Salaried Taxpayers: Those earning ₹12–12.75 lakh save significantly. For instance, a ₹12.1 lakh earner pays only ₹10,000 tax instead of ₹61,500.
- Middle-Class Families: The relief aligns with the government’s goal to boost disposable income and stimulate spending.
Latest Updates and Professional Implications.
- New Tax Slabs: The revised rates under Section 115BAC(1A) include a 15% bracket for ₹12–16 lakh and a 25% bracket for ₹20–24 lakh.
- Compliance Ease: Taxpayers can file updated returns within four years (up from two), though penalties for late filings have increased.
- Economic Impact: Analysts estimate ₹1 lakh crore in tax savings, driving consumer spending and economic growth.
Q1. Is marginal relief available for incomes above ₹12.75 lakh?
No. Relief stops at ₹12.75 lakh, and full slab rates apply beyond this.
Q2. How is the relief calculated?
Relief = Tax payable under slabs – (Income exceeding ₹12 lakh). Example: For ₹12.1 lakh, relief = ₹61,500 – ₹10,000 = ₹51,500.
Q3. Does the relief apply to capital gains or lottery income?
No. Special incomes taxed at separate rates are excluded.
Q4. How does the standard deduction benefit salaried individuals?
It raises the effective tax-free income to ₹12.75 lakh (₹12 lakh + ₹75,000 deduction).
Why This Matters for Taxpayers.
The marginal relief provision reflects a nuanced approach to tax fairness. By capping liabilities for those just above the threshold, the policy prevents a “cliff effect” where a small income increase leads to a disproportionately large tax jump. For financial planners, this means advising clients to optimize incomes near ₹12.75 lakh to maximize savings.
Final Takeaway.
The FY 2025 marginal tax relief is a lifeline for middle-income earners, ensuring equitable taxation. By understanding slab rates, relief calculations, and eligibility, taxpayers can make informed decisions and retain more of their hard-earned money. Stay updated with official CBDT guidelines or consult a tax professional for personalized advice.
Disclaimer:
The information provided in this article is for general informational purposes only and should not be construed as professional tax advice. While every effort has been made to ensure the accuracy and completeness of the content, tax laws and regulations are subject to change. Readers are advised to consult a qualified tax professional or refer to official government guidelines for specific advice tailored to their individual circumstances. The author and publisher disclaim any liability for any loss or damage arising from reliance on the information provided herein.
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C.K. Gupta
Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.
