If your gross income exceeds Rs.1 crore, there will be a surcharge of 12% on unpaid income tax. A marginal relief will be granted to taxpayers whose gross income exceeds Rs.one crore. Income tax payable on higher income (including surcharges) shall not exceed income tax payable on income exceeding Rs.1 crore.
Let’s take a closer look at the relevant clauses of marginal relief income tax.
If your gross income exceeds the deduction limit, you may still be able to claim a small deduction. Marginal relief is available if:
You or your spouse or partner are over the age of 65 and your total income is less than twice the deduction limit.
The marginal allowance limits your income tax (IT) burden to 40% of the difference between your gross income and your benefits. You will not receive any further deductions against your income for Marginal relief.
Marginal relief is granted only when it is more beneficial than using tax credits.
What Is Marginal Rate of Income Tax
The marginal tax rate is the income tax rate applied to each income bracket or rate. As your income increases, so does your tax liability, according to the income tax rate set by the government. Individuals earning more than Rs. 2.5 lakh in a year and that will liable for income tax then as their income increases, a higher slab of tax will be applicable.
Therefore, the marginal tax rate increases as the individual`s income bracket increases. The goal of marginal tax rates is to tax individuals based on their income. So, people with higher incomes are taxed higher and those with lower incomes are taxed lower.
| Income Tax Slab | Tax Rates As Per New Regime | Tax Rates As Per Old Regime |
| ₹0 – ₹2,50,000 | Nil | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% | 5% |
| ₹5,00,001 – ₹7,50,000 | ₹12500 + 10% of total income exceeding ₹5,00,000 | ₹12500 + 20% of total income exceeding ₹5,00,000 |
| ₹7,50,001 – 10,00,000 | ₹37500 + 15% of total income exceeding ₹7,50,000 | ₹62500 + 20% of total income exceeding ₹7,50,000 |
| ₹10,00,00 ₹12,50,000 | ₹75000 + 20% of total income exceeding ₹10,00,000 | ₹112500 + 30% of total income exceeding ₹10,00,000 |
| ₹12,50,001₹15,00,000 | ₹125000 + 25% of total income exceeding ₹12,50,000 | ₹187500 + 30% of total income exceeding ₹12,50,000 |
| Above ₹ 15,00,000 | ₹187500 + 30% of total income exceeding ₹15,00,000 | ₹262500 + 30% of total income exceeding ₹15,00,000 |
How Do You Calculate Marginal Relief
Marginal relief for an assessee whose gross income exceeds Rs. 50 lakh or Rs. 1 crore in some cases. Therefore, a small increase in income above the set limit will result in a large increase in tax liability.
To ensure that additional income tax payments, including surcharges on excess income exceeding Rs. 50 lakh or Rs. 1 crore marginal relief is allowed.
Margin Deduction Calculation
Margin Deduction = Calculated Surcharge – 70% (Income – Rs. 50,00,000) Similarly if the income is Rs. 1 crore a deduction is also allowed if the amount slightly exceeds the Lie. In this case, the above formula should be changed accordingly.
What Is the Difference between Income Tax and Marginal Tax
Income Tax Rate:
Income tax in India collects tax from individual taxpayers based on the slab system. The slab system means that different tax rates are ensured for different income brackets. These tax rates will continue to rise as taxpayer incomes increase.
This type of taxation allows for a progressive and fair tax system within the country. Such income tax slabs usually undergo change with each budget.
These slab rates vary by taxpayer category. Income tax divides “individual” taxpayers into three categories:
- Individuals (under 60) including residents and non-residents
- Resident seniors citizens (ages 60-80)
- Resident Super Senior citizens (Age 80 and over)
| Net Taxable Income | Income Tax Slab Rates under the New Tax Regime | Income Tax Slab Rates under the Old Tax Regime |
| Up to Rs 2.5 lakh | Exempt | Exempt |
| Rs 2,50,001 to Rs 5 lakh | 5% | 5% |
| Rs 5,00,001 to Rs 7.5 lakh | 10% | 20% |
| Rs 7,50,001 to Rs 10 lakh | 15% | 20% |
| Rs 10,00,001 to Rs 12.5 lakh | 20% | 30% |
| Rs 12,50,001 to Rs 15 lakh | 25% | 30% |
| Over Rs. 15 lakh | 30% | 30% |
Marginal Tax Rate:
The marginal tax rate is the income tax rate applied to each income bracket or rate. As your income increases, so does your tax liability, according to the income tax rate set by the government. Individuals earning more than Rs. 2.5 lakh in a year and that will liable for income tax then as their income increases, a higher slab of tax will be applicable.
Therefore, the marginal tax rate increases as the individual`s income bracket increases. The goal of marginal tax rates is to tax individuals based on their income. So, people with higher incomes are taxed higher and those with lower incomes are taxed lower.
| Income Tax Slab | Tax Rates As Per New Regime | Tax Rates As Per Old Regime |
| ₹0 – ₹2,50,000 | Nil | Nil |
| ₹2,50,001 – ₹ 5,00,000 | 5% | 5% |
| ₹5,00,001 – ₹ 7,50,000 | ₹12500 + 10% of total income exceeding ₹5,00,000 | ₹12500 + 20% of total income exceeding ₹5,00,000 |
| ₹7,50,001 – 10,00,000 | ₹37500 + 15% of total income exceeding ₹7,50,000 | ₹62500 + 20% of total income exceeding ₹7,50,000 |
| ₹10,00,001₹12,50,000 | ₹75000 + 20% of total income exceeding ₹10,00,000 | ₹112500 + 30% of total income exceeding ₹10,00,000 |
| ₹12,50,001₹15,00,000 | ₹125000 + 25% of total income exceeding ₹12,50,000 | ₹187500 + 30% of total income exceeding ₹12,50,000 |
| Above ₹ 15,00,000 | ₹187500 + 30% of total income exceeding ₹15,00,000 | ₹262500 + 30% of total income exceeding ₹15,00,000 |
Why Is Marginal Tax Important
Marginal tax rates are important when it comes to financial planning. Knowing the marginal tax rate is necessary to determine how much of a pay raise or bonus a taxpayer can keep after tax. It also helps taxpayers determine how much they can contribute to their retirement accounts, giving them tax incentives.
Frequently Asked Questions(FAQs):-
Is marginal relief related to tax rebate?
The Marginal relief limits your Income Tax (IT) burden to 40% of the difference between your gross income and rebate limit. For marginal relief, you will not receive any further deductions against your income. Marginal relief is granted only when it is more beneficial than using tax credits.
Can marginal relief be negative?
No, Marginal relief can not be negative.
Who is eligible for marginal relief?
Marginal relief is given to taxpayers with gross income over Rs. 1 crore i.e. Income tax (including surcharges) paid on income higher than that shall not exceed the income tax paid on Rs. one crore. rupees than the amount of income in excess of Rs. 1 crore.
Is marginal relief applicable to companies?
Marginal relief is only given to companies with gross revenue over Rs. ten crore, i.e. income tax paid on higher income (including surcharges) should not exceed income tax paid on Rs. 10 crores rupees in excess of revenue amount exceeding Rs. 10 crores.
Conclusion
Now as you know about marginal relief income tax. The basic idea is that the increase in tax burden (due to surcharge) should not exceed the increase in income. In this case, the taxpayer is entitled to a small deduction for the difference.