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Published 20:59 IST, February 5th 2025

Earning Just Over Rs 12 Lakh? Avoid Paying Full Tax with Marginal Relief - Here's How

A non-salaried taxpayer earning Rs 12.1 lakh would typically owe Rs 61,500 in taxes, but with marginal relief, this is reduced to Rs 10,000.

Reported by: Business Desk
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Marginal Tax Relief
Marginal Tax Relief | Image: Freepik

Marginal tax relief: You earn more than Rs 12 lakh and are worried that you'll have to pay full tax per slab? Well, the good news is that marginal tax relief can help ease your tax burden. With changes in the Union Budget 2025, taxpayers earning between Rs 12 lakh and Rs 12.75 lakh benefit from this provision.

What is marginal tax relief?

Marginal relief applies to resident individuals whose income slightly exceeds Rs 12 lakh. Without this relief, the jump in tax liability would be steep. However, the provision helps bridge this gap, ensuring that the additional tax owed is proportionate to the income exceeding the exemption limit.

For instance, a non-salaried taxpayer earning Rs 12.1 lakh would typically owe Rs 61,500 in taxes. However, with marginal relief, this amount is significantly reduced to just Rs 10,000, preventing an excessive tax burden on those earning slightly above Rs 12 lakh.


How does it apply to different salaries? 

 

How is marginal relief is calculated?

Normal tax calculation without relief

  •  If your income is Rs 12.1 lakh, the tax without marginal relief would be Rs 61,500.
  • This is based on applying tax slabs to your full income.

Finding the excess over Rs 12 lakh

  • Since Rs 12 lakh is tax-free (due to the rebate under Section 87A), we check how much your income exceeds Rs 12 lakh.
  • Excess income = Rs 12,10,000 - Rs 12,00,000 = Rs 10,000.

Applying marginal relief

  • The idea behind marginal relief is you shouldn't pay more tax than your extra income.
  • The total tax of Rs 61,500 is much higher than your excess income of Rs 10,000.
  • So, the government provides a relief of Rs 51,500 (Rs 61,500 - Rs 10,000).

After applying the relief, your final tax payable is Rs 10,000.

This ensures that just because you earned Rs 10,000 extra, you don’t end up paying Rs 61,500 in tax, which would be unfair.

Rebate vs Marginal Relief

Under the new tax regime, individuals earning Rs 12 lakh or less qualify for a full rebate under Section 87A, making them tax-exempt. For those earning slightly above Rs 12 lakh, marginal relief will offer smoother transition into taxation rather than an abrupt increase in liability.

While many expected full tax exemption for incomes up to Rs 12 lakh, not all cases qualify. Special rate incomes like capital gains do not fall under Section 87A rebates. However, the broader tax relief measures are projected to result in savings of Rs 1 lakh crore, potentially increasing disposable income and financial flexibility for taxpayers.

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Updated 21:00 IST, February 5th 2025