Union Budget 2025: Understanding Marginal Relief for Taxpayers

 

Your Guide to Smarter Tax Planning Under the New Regime

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By Jagannath Panda, April 10, 2025

Finance Minister Nirmala Sitharaman’s latest budget has rolled out transformative measures to reduce the financial strain on individual taxpayers. The standout reform? A revamped income tax rebate threshold under the new tax regime, shielding incomes up to ₹12 lakh from taxation. For salaried professionals, this exemption climbs to ₹12.75 lakh, factoring in the ₹75,000 standard deduction—a move designed to empower middle-class earners.

But what if your earnings cross this threshold? Even a modest overshoot could trigger confusion about tax liabilities. Enter marginal relief—a safeguard ensuring that a small income hike doesn’t lead to a disproportionate tax spike. Let’s decode this provision, step by step, and uncover how it protects your hard-earned money.

Key Highlights 🌟

• Tax-Free Income: ₹12 lakh (₹12.75 lakh for salaried with standard deduction).
• Marginal Relief: Prevents disproportionate tax on income just above ₹12 lakh.
• Applicability: Residents with taxable income between ₹12–12.75 lakh.
• Break-Even Point: Relief applies up to ₹12.75 lakh; beyond this, standard slabs apply.

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What Is Marginal Relief?

Section 87A ensures that a small income hike over ₹12 lakh doesn’t lead to a steep tax jump.

• Purpose: Protect taxpayers from paying more tax than their incremental income.
• Example: If you earn ₹12.1 lakh (₹10k above the limit), your tax won’t exceed ₹10k + cess.

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How It Works: Simplified 🔍

1. Calculate Taxable Income:
• Gross Income − Deductions (e.g., standard deduction, NPS).
2. Check Threshold:
• If net income is ₹12–12.75 lakh, apply marginal relief.
3. Tax Calculation:
• Without Relief: Follow slab rates.
• With Relief: Tax capped at the amount exceeding ₹12 lakh.

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Case Study: Mr. A’s Tax Savings 💼

Income: ₹14 lakh (Gross)
Deductions:

• Standard Deduction: ₹75,000
• NPS (Employer Contribution): ₹1,00,000
  Net Taxable Income: ₹12.25 lakh

Tax Component	Without Relief	With Relief
Tax as per Slabs	₹63,750	₹25,000
Add 4% Cess	₹2,550	₹1,000
Total Tax Payable	₹66,300	₹26,000
Savings	—	₹40,300

Calculation Breakdown:

• Incremental Income: ₹12.25L − ₹12L = ₹25,000.
• Relief Benefit: Tax limited to ₹25,000 (excess income) + cess.

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Tax Liability Comparison 📊

Income (₹)	Tax Without Relief (₹)	Tax With Relief (₹)	Savings (₹)
12,00,000	60,000	0	60,000
12,50,000	67,500	50,000	17,500
12,75,000	71,250	71,250	0

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Break-Even Point ⚖️

• Relief applies only up to ₹12.75 lakh.
• Beyond ₹12.75L, standard tax slabs apply.

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Eligibility Criteria ✅

• Who Can Claim: Resident individuals (salaried/non-salaried).
• Who Can’t: Non-residents, HUFs, trusts, or companies.

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Why Marginal Relief Matters 💡

• No Penalty for Earning More: Accept promotions/side income without tax worries.
• Supports Middle Class: Retain more disposable income.
• Simplified Compliance: Reduces complex tax planning for modest earners.

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Final Takeaways 🚀

1. Marginal relief is a safety net for incomes slightly above ₹12 lakh.
2. Always calculate net taxable income after deductions.
3. Plan investments (e.g., NPS) to stay within the ₹12.75L threshold.

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Disclaimer: This is a simplified illustration. Consult a tax advisor for personalised advice.

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