Marginal Relief under New Tax Regime

The Income Tax Department has introduced the concept of Marginal Relief for the benefit of small taxpayers. This relief is a tax measure designed to promote fairness and prevent situations where people may be reluctant to earn more income due to the possibility of higher taxes. This provision helps ease the transition between tax brackets and guarantees that the tax load increases only gradually as earnings increase.

Understanding of Marginal relief

Marginal relief helps taxpayers avoid facing a significantly high increase in their tax burden due to a small increase in their income that pushes them into a higher tax bracket. In the absence of such relief, the taxpayers would have to pay a higher tax rate on their entire income, leading to a substantial jump in their overall tax liability.

Therefore, in cases where the taxpayer’s income exceeds a certain threshold and affects higher tax rates, marginal relief will be applied to limit the impact of higher tax rates. Moreover, relief is available under the new tax regime only. Hence, if the individual is opting for the old regime then they will not be able to claim marginal relief.

The concept of Marginal Relief is introduced by government by Budget 2023 for the individuals who are opting into New Tax Regime from FY 2023-24.

Tip

The concept of Marginal Relief is introduced by government by Budget 2023 for the individuals who are opting into New Tax Regime from FY 2023-24.

Marginal Relief in New Tax Regime

Under the new tax regime, the rebate is available for INR 25,000 if the income of the individual does not exceed INR 7 lakhs. However, if the income slightly increases by INR 7 lakhs then the individual will end up paying a higher amount of taxes. In such cases, they will be eligible to claim the benefit of marginal relief.

The total income for claiming marginal relief includes incomes that are chargeable at slab tax rates, income from Short Term Capital Gains under section 111A, and Long Term Capital Gains under section 112. However, it’s important to note that this relief does not apply to long-term capital gains under section 112A.

On July 5, 2024, the Income Tax Department issued a clarification stating that relief will not be available for short-term capital gains under Section 111A for the financial year 2023-24.

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On July 5, 2024, the Income Tax Department issued a clarification stating that relief will not be available for short-term capital gains under Section 111A for the financial year 2023-24.

Eligibility to claim Relief

Resident individuals can claim such relief if they are opting into the new tax regime. Further, senior citizens and super senior citizens are also eligible to claim such relief.

Further, It is available for only Residents and Residents but not ordinarily resident individuals. Hence, the relief is not available for Non-Resident Indians.

Calculation of Relief

The individual can claim relief of the difference between the tax amount and an increase in income over INR 7 lakhs.

Let us understand this using an example:

Aditya is earning a total annual income of INR 7,15,000 for FY 2023-24 and he is opting for a new tax regime. His tax liability as per the tax rates available under the new regime will be INR 26,500. Here we can see that by a slight increase of INR 15,000 in his income he is liable to pay the tax of INR 26,500.

Hence, in this case, he will be eligible to claim the relief as calculated below:

Marginal relief = Tax liability – Income over INR 7 lakhs
= 26,500 – 15,000
= 11,500

So, now he has to pay taxes INR 15,000 plus education cess and interest if any.

Examples

For a better understanding of this concept let us take a few different case scenarios of incomes and their taxability and the relief available on the same.

FAQ’s