Marginal Relief in Income Tax: Meaning, Calculation and FAQs Explained

High-income taxpayers often face a sharp increase in tax liability when their income crosses a surcharge threshold. To prevent an unfair tax burden in such situations, the Indian tax system provides a provision known as marginal relief. Understanding marginal relief in income tax is essential for individuals whose income slightly exceeds the specified limits.

In this blog, we explain what marginal relief in income tax is, how marginal tax relief works, how to calculate it and answer common questions related to this concept.

What is Marginal Relief in Income Tax?

Marginal relief in income tax is a provision that ensures the additional tax payable due to surcharge does not exceed the additional income earned beyond a specified threshold.

In simple terms, marginal relief prevents a situation where earning ₹1 extra results in paying disproportionately higher tax. This relief is applicable when the surcharge increases after crossing income limits such as ₹50 lakh or ₹1 crore.

Many taxpayers also refer to this as marginal tax relief, as it limits the additional tax payable caused by higher surcharge rates.

Why Marginal Relief is Important?

Without marginal relief, taxpayers whose income marginally exceeds a surcharge threshold would end up paying significantly more tax than those just below the limit. This would discourage income growth and create inequity.

Marginal relief ensures fairness by maintaining a balance between income earned and tax paid.

When Does Marginal Relief Apply?

Marginal relief generally applies in the following situations:

• When total income exceeds ₹50 lakh
• When income crosses higher surcharge slabs
• When a surcharge results in an excessive tax burden

The applicability and limits are governed by tax laws and clarified by authorities like the Central Board of Direct Taxes (CBDT).

Marginal Relief Formula

To understand marginal relief, it is important to know how it is calculated. Below is the Marginal Relief Formula, presented clearly for reference.

Marginal Relief Formula

Marginal Relief = Total Tax Payable with Surcharge − (Tax on Threshold Income + Additional Income)

Where:

• Tax on Threshold Income is the tax payable on income just before the surcharge applies
• Additional Income is the amount by which total income exceeds the threshold
• Additional tax payable due to surcharge should not exceed the additional income earned

If the surcharge causes tax to increase beyond the extra income, marginal relief reduces the tax to that extent.

Example to Understand Marginal Relief in Income Tax

Suppose an individual earns ₹50,10,000 in a financial year. The surcharge applies once income exceeds ₹50 lakh.

Without marginal relief, the surcharge may cause tax liability to increase by more than ₹10,000. In such a case, marginal relief in income tax ensures that the extra tax payable does not exceed ₹10,000, which is the additional income earned.

This mechanism ensures fairness and prevents disproportionate taxation.

Marginal Tax Relief and Surcharge Thresholds

Marginal tax relief is closely linked to surcharge rates. Surcharge increases progressively as income rises. For example:

• Income above ₹50 lakh attracts a higher surcharge
• Income above ₹1 crore attracts even higher surcharge

Marginal relief applies at each surcharge threshold to ensure tax remains reasonable.

Role of the Central Board of Direct Taxes (CBDT)

The Central Board of Direct Taxes (CBDT) plays a key role in issuing clarifications and guidelines related to surcharge and marginal relief. CBDT notifications help taxpayers and professionals understand how marginal relief in income tax should be applied in different scenarios.

These clarifications add transparency and consistency in tax administration.

Common Misunderstandings About Marginal Relief

Many taxpayers believe marginal relief reduces their total tax liability significantly. In reality, marginal relief only limits the excess tax caused by the surcharge. It does not reduce the base tax or apply universally.

Another misconception is that marginal relief is automatic in all cases. It applies only when the surcharge causes tax to increase more than the additional income.

Who Should Be Aware of Marginal Relief?

Understanding what is marginal tax relief is especially important for:

• High-income salaried individuals
• Business owners and professionals
• Taxpayers close to surcharge thresholds

Proper awareness helps in accurate tax planning and avoids confusion during filing.

Conclusion 

Marginal relief in income tax plays a crucial role in ensuring fairness for taxpayers whose income slightly exceeds surcharge thresholds.  However, effective tax planning also requires smart cash-flow management, especially around surcharge limits and advance tax payments.

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FAQs on Marginal Relief in Income Tax

What is the marginal relief in income tax 87A?

Marginal relief under Section 87A is different from surcharge-related marginal relief. Section 87A provides a rebate for low-income taxpayers, while marginal relief applies to high-income taxpayers to limit excess tax due to surcharge.

How do you calculate marginal relief?

Marginal relief is calculated by comparing the additional tax payable due to surcharge with the additional income earned above the threshold. If the tax increase exceeds the extra income, the excess is reduced as marginal relief.

What is the marginal relief for income above 50 lakhs in India?

For income above ₹50 lakh, marginal relief ensures that the additional tax payable due to surcharge does not exceed the income earned above ₹50 lakh. The exact relief depends on total income and applicable surcharge rates.