The Union Budget 2025 introduced significant changes to India’s income tax structure, notably the concept of marginal tax relief. This provision ensures that taxpayers whose income slightly exceeds the exemption threshold are not disproportionately taxed.
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Understanding Marginal Tax Relief
Marginal tax relief is designed to prevent situations where a minor increase in income results in a disproportionately higher tax liability. Without this relief, individuals earning just above the tax-exempt limit could end up paying more in taxes than the amount by which their income exceeds the exemption threshold.
Key Highlights from Budget 2025
• Increased Tax Exemption Limit: The tax exemption limit has been raised to ₹12 lakh, with a standard deduction of ₹75,000. This means individuals with an income up to ₹12.75 lakh are exempt from paying income tax.
• Application of Marginal Relief: For incomes slightly above ₹12.75 lakh, marginal relief ensures that the additional tax payable does not exceed the surplus income over the exemption limit.
Income Tax Calculation for ₹12 Lakh Annual Income:
- Annual Income: ₹12,00,000
- Standard Deduction: ₹50,000
- Taxable Income: ₹12,00,000 – ₹50,000 = ₹11,50,000
- Tax Calculation:
- Up to ₹4,00,000: No tax
- ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹11,50,000: 10% of ₹3,50,000 = ₹35,000
- Total Tax Before Rebate: ₹20,000 + ₹35,000 = ₹55,000
- Rebate Under Section 87A: ₹55,000 (entire tax liability)
- Total Tax Payable: ₹55,000 – ₹55,000 = ₹0
Therefore, an individual with an annual income of ₹12 lakh will not have any tax liability under the new tax regime.
Marginal Tax Relief Calculation Table (Budget 2025)
| Income Level | Taxable Income (After ₹75,000 Std Deduction) | Tax Slab | Tax Amount | Total Tax Before Relief | Excess Over ₹12,75,000 | Final Tax After Marginal Relief |
|---|---|---|---|---|---|---|
| ₹12,80,000 | ₹12,05,000 | ₹4,00,000 @ 0% | ₹0 | ₹60,500 | ₹5,000 | ₹5,000 |
| ₹4,00,001 – ₹8,00,000 @ 5% | ₹20,000 | |||||
| ₹8,00,001 – ₹12,05,000 @ 10% | ₹40,500 | |||||
| ₹13,00,000 | ₹12,25,000 | ₹4,00,000 @ 0% | ₹0 | ₹62,500 | ₹25,000 | ₹25,000 |
| ₹4,00,001 – ₹8,00,000 @ 5% | ₹20,000 | |||||
| ₹8,00,001 – ₹12,25,000 @ 10% | ₹42,500 |
Key Takeaways
- Marginal Tax Relief ensures that taxpayers don’t pay more tax than the amount by which their income exceeds ₹12,75,000.
- For ₹12,80,000, the tax liability before relief was ₹60,500, but since the excess over ₹12,75,000 is just ₹5,000, the final tax payable is ₹5,000 only.
- For ₹13,00,000, the tax before relief was ₹62,500, but the excess over ₹12,75,000 is ₹25,000, so the final tax is reduced to ₹25,000.
This method prevents disproportionate tax jumps and ensures a fair tax burden under the new regime. Let me know if you need further refinements or additional examples! 🚀
Conclusion
The introduction of marginal tax relief in the Union Budget 2025 ensures tax equity for individuals with incomes slightly above the exemption limit. By preventing disproportionate tax burdens due to minor income increases, this measure promotes fairness in the tax system.
For detailed information, refer to the official Union Budget 2025 documents.