Marginal Relief in New Tax Regime for Small Taxpayers

marginal relief in new tax regime for small tax payers

Marginal Relief in New Tax Regime is a relief for small tax payers to pay less tax when actual income tax is more than the income above Rs. 7 lakh. This marginal relief is not available in old tax regime, so if your taxable income is Rs. 5,00,010 with old regime, you need to pay Rs. 13,000 as tax since you don’t get tax rebate 87A benefit. Where as with new tax regime, if your taxable income is Rs. 7,00,010, you only pay Rs. 10 as tax and include cess of 4% on this amount and that is due the benefit of marginal relief even if you are not eligible for tax rebate 87A.

Let us understand Marginal Relief in New Tax Regime for small Tax payers in more detail.

Table of Contents

What is Marginal Relief in New Tax Regime?

  • Marginal Relief in New Tax Regime is a relief for small tax payers to pay less tax due to slight increase in income above Rs. 7 lakh
  • With new tax regime, the tax rebate under section 87A has a limit of Rs. 25,000 when your taxable income is Rs. 7 lakh or less
  • So when your income is Rs. 7 lakh, your income tax according to various slabs will be Rs. 25,000, but you get tax rebate of Rs. 25,000 under section 87A, due to which your effective income tax is Rs. 0
  • But when your income increases slightly above Rs. 7 lakh, you would have paid this Rs. 25,000 as tax since now you are not eligible for tax rebate 87A
  • This would be unfair since your tax liability in this case will be more compared to the income above Rs. 7 lakh with new tax regime
  • So to solve this issue, government provides marginal relief to such tax payers where the income tax is higher than the actual income of the individual
  • For above example of Rs. 7,00,010, the individual need to only pay Rs. 10 + cess of 4% on the amount that is above Rs. 7 lakh, instead of paying the rebate amount of Rs. 25,000 as well
  • This marginal relief helps the tax payers to pay the tax only for the amount above Rs. 7 lakh

ALSO READ: Tax Rebate 87A explained with old and new tax regime

Benefits of Marginal Relief in New Tax Regime for small Tax Payers

Below are some benefits of marginal relief for small tax payers:

  • Marginal Relief in New Tax Regime for small tax payers help them to reduce the tax liability
  • If your income is between Rs. 7 lakh to Rs. 7,27,777, you pay the amount above Rs. 7 lakh as income tax + cess of 4%, instead of paying the entire Rs. 25,000 what you get rebate on Rs. 7 lakh income
  • This marginal relief is only available with new tax regime and not with old tax regime

Is Marginal Relief available with Income above Rs. 7 Lakh?

Yes Marginal relief is available on income above Rs. 7 lakh with new tax regime.

Below is the table of income tax calculated with and without marginal relief with new tax regime:

Marginal Relief in New Tax Regime with examples
Marginal Relief in New Tax Regime with examples

So above are the examples of income tax calculation with old and new tax regime after considering marginal relief foe small tax payers.

Highlighted in yellow is the income tax you need to pay with old tax regime on mentioned incomes and highlighted in green is the income tax you would pay with new tax regime.

For income of Rs. 7,10,000, without marginal relief you would have to pay Rs. 27,040, but if we consider the marginal relief since the income above Rs. 7 lakh is less than the actual tax to be paid, you only pay tax of Rs. 10,400.

So basically you save Rs. 16,640 on Rs. 7,10,000 income with new tax regime due to marginal relief benefit.

ALSO READ: Income Tax Calculator 2024-25 Excel Download

How to Calculate Marginal Relief in New Tax Regime?

You can easily calculate your income tax with old and new tax regime by using the calculator below. This calculator shows the tax amount to be paid with new tax regime after including marginal relief:

instant calculator click here
instant calculator click here

You will be eligible for marginal relief for income up to Rs. 7,27,777, after which the income tax calculated using marginal relief criteria will be higher compared to the conventional way of calculating income tax.

So on income above this limit of Rs. 7,27,777, you will be paying income tax with new tax regime as per the normal way of calculations.

For example, in above table of calculations, on Rs. 7,30,000 the tax with normal way of calculations (including 5% and 10% brackets) is Rs. 29,120, which you pay as income tax, and not Rs. 31,200 which is calculated considering the income above Rs. 7 lakh.

So you don’t have to worry, you’ll pay less tax with any of the methods if your income is above Rs. 7 lakh with new tax regime.

Is Marginal Relief available in old tax regime?

No, marginal relief is not available in old tax regime, due to which if your taxable income is Rs. 5,00,010, you pay Rs. 13,000 as income tax which also includes Rs. 12,500 tax rebate that you don’t get in this case.

Below is the video on tax rebate and marginal relief with old and new tax regimes:

Tax Rebate 87A and Marginal Relief Examples Video

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Conclusion

So to conclude, marginal relief in new tax regime is the relief you get as small tax payers if your income is slightly above Rs. 7 lakh. This will help you to pay less tax compared to the actual income above Rs. 7 lakh.

It is important to note that this marginal relief for small taxpayers is not available with old tax regime. You only get this relief in new tax regime

Some more Reading:

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