income tax
Published on 9 April 2025
Understanding Marginal Relief and Surcharge Rates Explained
Understanding Marginal Relief on Surcharge
Marginal relief is essential for alleviating the tax burden related to the surcharge imposed on incomes exceeding certain thresholds. Below are the applicable surcharge rates for Individual, Hindu Undivided Family (HUF), Association of Persons (AOP), and Body of Individuals (BOI).
Surcharge Rates for Different Income Brackets
| Income Range (INR) | Surcharge Rate |
|---|---|
| > 50 lac – up to 1 Cr | 10% |
| > 1 Cr – up to 2 Cr | 15% |
| > 2 Cr – up to 5 Cr | 25% |
| > 5 Cr – up to 10 Cr | 37% |
| > 10 Cr | 37% |
Explanation of Marginal Relief
The necessity for marginal relief arises from the disparities in tax liability due to small increments in income. For instance, consider the following scenario:
- Income Level A: 50 lac
- Tax as per Old Slabs: 13,12,500
- Income Level B: 51 lac
- Tax as per Old Slabs: 14,76,750
Tax Increase Analysis
- Income Difference (B - A): 1 lac
- Tax Increase: 14,76,750 - 13,12,500 = 1,64,250
This situation illustrates that an increase of just 1 lac in income results in a tax increase of 1,64,250. This considerable leap in tax obligation creates a significant burden on the taxpayer. Thus, to address this issue, the provision for Marginal Relief was introduced in the Income Tax Act.
Amount of Marginal Relief
The calculation for marginal relief in this case is as follows:
- Marginal Relief = Tax Increase - Excess Income
- Marginal Relief = 1,64,250 - 1,00,000
- Marginal Relief = 64,250
In instances where a taxpayer's net income surpasses INR 50 lakhs but does not exceed INR 1 crore (as in the example with an income of 51 lakhs), the total tax liability (including surcharge, which amounts to 14,76,750) must not exceed the tax on an income of 50 lakhs (13,12,500) by more than the income exceeding 50 lakhs (1 lac).
Conclusion
Marginal relief serves as a critical mechanism to ensure that taxpayers are not disproportionately penalized for minor increases in their income. By understanding the implications of the surcharge and the relief provisions, individuals can effectively navigate their tax responsibilities.