Income Tax Marginal Relief FY 2025-26: Meaning, Calculation & Examples
Income Tax Marginal Relief FY 2025-26: Meaning, Calculation, Examples, and Tax Calculator
Introduction
Marginal relief is one of those lesser-known but extremely beneficial provisions in the Indian Income Tax system. For individuals and entities whose income just crosses a specific surcharge threshold, this provision can significantly reduce the tax burden. In this comprehensive guide on CMAknowledge.in, we break down the concept of Marginal Relief, its importance, how it works under the Old and New Tax Regimes for FY 2025-26 (AY 2026-27), and provide you with multiple examples, a calculator script, and answers to common questions.
What is Marginal Relief?
Marginal Relief is a provision that ensures fairness in taxation. It protects taxpayers from paying a disproportionately higher tax due to marginal increases in income that cross surcharge thresholds. Simply put, if the additional tax (because of surcharge) on your income is more than the income that exceeds the threshold, you are allowed relief to the extent of the excess.
Legal Framework
The provision for marginal relief is not explicitly codified under a single section of the Income Tax Act. Instead, it is part of the surcharge computation mechanism described in the Finance Act applicable for the financial year. The CBDT and Finance Ministry clarify marginal relief applicability during Budget announcements.
Who Can Claim Marginal Relief?
- Individuals (including salaried, professionals, and freelancers)
- Senior and Super Senior Citizens
- Hindu Undivided Families (HUFs)
- Firms and LLPs
- Domestic Companies
- Trusts and AOPs (in some cases)
Surcharge Slabs for FY 2025-26
Old Tax Regime
- ₹50 lakh to ₹1 crore: 10%
- ₹1 crore to ₹2 crore: 15%
- ₹2 crore to ₹5 crore: 25%
- Above ₹5 crore: 37%
New Tax Regime (Section 115BAC)
- ₹50 lakh to ₹1 crore: 10%
- ₹1 crore to ₹2 crore: 15%
- Above ₹2 crore: 25% (maximum capped surcharge)
Why is Marginal Relief Important?
Without marginal relief, crossing the surcharge threshold by even ₹1 would lead to a tax burden increase of lakhs of rupees. This is especially relevant for income levels like ₹50,00,000 or ₹1,00,00,000, where surcharge starts kicking in. It ensures that taxation remains fair and proportional.
How to Calculate Marginal Relief: Step-by-Step
- Compute the total tax (including surcharge and cess) for your actual income.
- Compute tax on the income at the surcharge threshold.
- Find the difference between actual income and the threshold (this is extra income).
- Compare the additional tax due to surcharge with the extra income.
- If extra tax > extra income, the excess is granted as marginal relief.
Example 1: Salaried Individual Crossing ₹50 Lakh (Old Regime)
Income: ₹50,01,000
Tax without surcharge: ₹13,12,500
With 10% surcharge: ₹14,43,750
Extra tax = ₹1,31,250 | Extra income = ₹1,000
Marginal Relief = ₹1,30,250
Example 2: Professional Under New Regime Earning ₹2.01 Crore
Income: ₹2,01,00,000
Tax without surcharge: ₹52,00,000
Tax with 25% surcharge: ₹65,00,000
Extra income: ₹1,00,000
Extra tax: ₹13,00,000
Marginal Relief = ₹12,00,000
Example 3: Senior Citizen With ₹1.01 Crore
Tax without surcharge: ₹26,90,000
Tax with surcharge: ₹28,00,000
Extra income: ₹1,00,000 | Extra tax = ₹1,10,000
Marginal Relief = ₹10,000
Example 4: Domestic Company with ₹10.01 Lakh
Tax without surcharge: ₹2,70,000
Tax with surcharge: ₹2,91,000
Extra income: ₹1,000 | Extra tax = ₹21,000
Marginal Relief = ₹20,000
Old Regime vs New Regime: Impact of Marginal Relief
The new regime has capped surcharge at 25%, which limits the scope of marginal relief compared to the old regime where surcharge goes up to 37%. High earners may benefit more under the new regime for simplicity and lower surcharge, but deductions are not allowed.
When to Choose Old Regime
- When claiming deductions like 80C, 80D, HRA, LTA
- When income is close to ₹50L or ₹1 Cr with deductions
When to Choose New Regime
- If no major deductions are being claimed
- High net income > ₹2 Cr (due to capped surcharge)
Tax Calculator: Marginal Relief Estimator
FAQs
Is Marginal Relief available under both regimes?
Yes, it is applicable under both the old and new regimes wherever surcharge is levied.
Can Marginal Relief be claimed by salaried persons?
Absolutely. Salaried individuals crossing the ₹50 lakh threshold are eligible.
Do I need to file a separate form to claim Marginal Relief?
No. It is auto-calculated when filing your ITR using most tax filing platforms or by your CA.
Does Marginal Relief reduce my total income?
No, it only reduces the tax payable. Your income remains unchanged.
Is it available for firms and companies?
Yes, all assessees including firms and domestic companies can claim Marginal Relief.
Conclusion
Marginal Relief is a practical safeguard that prevents tax burdens from rising unfairly when you cross a surcharge slab by a small margin. It’s especially useful for taxpayers earning just above ₹50 lakh, ₹1 crore, or ₹2 crore. By understanding and applying this concept — or using our calculator — you can ensure your taxes are fair and optimized.
For more such detailed articles, keep visiting cmaknowledge.in — your trusted partner in tax clarity!
Posts
Post a Comment