When your income increases slightly & you suddenly face a sharp jump in tax, it feels unfair. The marginal relief in income tax section addresses that problem. Marginal relief in income tax is a benefit provided to taxpayers whose income marginally exceeds a prescribed limit. It ensures the additional tax payable is not higher than the extra income earned.
In simple terms, it protects taxpayers from paying more tax than the benefit they received from earning slightly more.
Legal Provision for Marginal Relief
Marginal relief is a provision under Section 87A of the Income Tax Act, & it also applies in surcharge computations for higher-income taxpayers.
It is relevant in two cases:
- When income exceeds the rebate limit under Section 87A.
- When total income crosses surcharge thresholds (₹50 lakh, ₹1 crore, ₹2 crore, ₹5 crore).
Thus, whether you are a middle-income salaried employee or a high-earning professional, the marginal relief section in income tax act ensures equitable taxation.
Why Marginal Relief Exists
The Indian tax system is progressive — meaning higher income attracts higher tax. But sometimes, a small rise in income can lead to an unexpectedly large jump in payable tax."
To correct this imbalance, marginal relief allowed on rebate is applied. It ensures that taxpayers pay fair tax proportional to their earnings instead of losing money to a structural anomaly.
For example, if your income goes just ₹5,000 above the rebate limit, you shouldn’t end up paying ₹25,000 extra in tax. Marginal relief makes sure of that.
Section 87A — The Foundation of Marginal Relief
Section 87A of the Income Tax Act offers a rebate of up to ₹25,000 for resident individuals with income up to ₹7 lakh (under the new regime).
If your income slightly crosses ₹7 lakh, marginal relief is available under Section 87A, so the extra tax payable doesn’t exceed the excess income.
It’s an automatic adjustment — no separate form or claim is required. The system calculates it while computing your total tax liability.
Also Read: The Secret Tax Rebate That Can Cut Your Tax to Zero!
Example 1 — Marginal Relief Under Section 87A
Let’s say two individuals have the following incomes:
|
Particulars |
Mr. A |
Mr. B |
|
Total Income |
₹7,00,000 |
₹7,05,000 |
|
Income Above Limit |
Nil |
₹5,000 |
|
Tax (Before Rebate) |
₹25,000 |
₹25,700 |
|
Rebate u/s 87A |
₹25,000 |
Nil |
|
Final Tax (Before Relief) |
₹0 |
₹25,700 |
Here, Mr. B’s extra income is ₹5,000, but his tax increases by ₹25,700 — far higher than his gain.
So, under marginal relief in income tax section, his tax will be restricted to ₹5,000 only. This ensures tax remains fair & logical.
Marginal Relief for High-Income Taxpayers (Surcharge Cases)
For those with total income of more than Rs.1 crore, surcharge comes into play.
The surcharge rate increases progressively as income rises:
- 10% for income above ₹50 lakh
- 15% for income above ₹1 crore
- 25% for income above ₹2 crore
- 37% for income above ₹5 crore
However, if surcharge results in an excessive jump in tax, the marginal relief in income tax section ensures that the total additional tax does not exceed the extra income earned beyond the threshold.
Example 2 — Marginal Relief for Income Exceeding ₹1 Crore
|
Particulars |
Mr. X |
Mr. Y |
|
Total Income |
₹1,00,00,000 |
₹1,01,50,000 |
|
Basic Tax @30% |
₹30,00,000 |
₹30,45,000 |
|
Surcharge @15% |
₹4,50,000 |
₹4,57,000 |
|
Total Tax (Before Relief) |
₹34,50,000 |
₹35,02,000 |
|
Difference in Income |
— |
₹1,50,000 |
|
Difference in Tax |
— |
₹52,000 |
Here, the tax increased by ₹52,000 while income rose by ₹1.5 lakh, which is acceptable."
But if the tax difference had exceeded ₹1.5 lakh, marginal relief would reduce it to maintain fairness.
That’s how the section of marginal relief in income tax ensures that taxpayers aren’t penalized for crossing limits marginally.
Marginal Relief Under New & Old Tax Regimes
Both tax regimes provide for marginal relief, though their applicability differs slightly.
- In the new regime, it applies around ₹7 lakh (rebate threshold).
- In the old regime, it applies for surcharge-based income (₹50 lakh & above).
In both systems, the principle remains — no taxpayer should pay more tax than the income gained by crossing a limit. For FY 2024–25, it also offers a marginal relief on an income exceeding Rs.12.75 lakhs under certain rebate-based calculations.
Also Read: Rebate on Life Insurance, Provident Fund & More
How to Calculate Marginal Relief
Here’s a simple 4-step process:
- Compute total tax liability (including surcharge and cess).
- Find the excess income above the threshold (₹7 lakh, ₹50 lakh, ₹1 crore, etc.).
- Calculate the difference in tax payable before & after crossing the limit.
- If the tax difference > income difference, marginal relief = (Tax difference – Income difference).
The resulting figure reduces your total tax to a fair and balanced level.
When Marginal Relief Doesn’t Apply
- If income exceeds the limit by a wide margin (say ₹8 lakh instead of ₹7 lakh), the relief won’t apply.
- It’s not available for non-residents.
- In presumptive income cases (Sections 44AD, 44ADA), marginal relief may not alter computations directly.
Essentially, it’s meant for minor excess situations, not substantial income jumps.
Important Takeaways
✅ Marginal relief is not an exemption; it’s a tax adjustment mechanism.
✅ It prevents steep jumps in tax liability.
✅ It is automatically applied — no need for a separate claim.
✅ Helps both middle-income & high-net-worth taxpayers.
✅ Maintains fairness between tax slabs.
The marginal relief income tax section ensures smooth transitions between slabs, removing sudden tax shocks.
Relevance for High-Income Individuals
For individuals earning above ₹1 crore, marginal relief section under income tax act plays a vital role. It ensures that surcharge doesn’t make total taxes irrational.
For instance, someone earning ₹1.01 crore shouldn’t pay ₹60,000 extra in tax for earning ₹1 lakh more. The relief fixes such gaps automatically during tax computation.
Why It Matters for the Middle Class
For middle-class taxpayers, marginal relief under Section 87A protects the ₹7 lakh rebate threshold.
If your income is ₹7,02,000 or ₹7,05,000, your effective tax will increase only marginally, not drastically.
That’s why it’s called “marginal” — the tax increase is capped to the margin of your income.
Also Read: Development Rebate and Deductions
Common Mistakes While Calculating Relief
- Forgetting to apply rebate before checking relief.
- Ignoring surcharge impact in manual calculations.
- Using outdated slab rates from old regimes.
- Misunderstanding rebate vs. relief (they are not the same).
A professional CA can ensure accurate calculations, especially when your income is close to any threshold.
Key Differences Between Rebate and Relief
|
Aspect |
Rebate (Section 87A) |
Marginal Relief |
|
Purpose |
Reduce tax for small earners |
Adjust excess tax due to thresholds |
|
Limit |
Up to ₹7 lakh (FY 2024–25) |
Around ₹7 lakh, ₹50 lakh, ₹1 crore, etc. |
|
Claim Process |
Auto-applied during ITR |
Auto-adjusted by system |
|
Benefit Type |
Flat reduction |
Tax balance mechanism |
Both work together to maintain fairness & proportionality in taxation.
Final Thoughts
The marginal relief in income tax section is one of the most balanced & taxpayer-friendly provisions under Indian tax law. It ensures that small increases in income don’t lead to excessive tax jumps. Whether you’re earning just above ₹7 lakh or total income of more than Rs.1 crore, this provision keeps your tax liability reasonable. It truly reflects the principle of fair taxation that the Income Tax Act aims to uphold.
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