Mumbai, February 3: In the Union Budget 2025, Finance Minister Nirmala Sitharaman introduced significant changes aimed at easing the tax burden on individuals. The income tax exemption limit has been set at INR 12 lakh, but new provisions, including standard deduction and marginal relief, have made salaries up to INR 13.05 lakh tax-free. This move offers significant benefits, particularly for salaried individuals who now enjoy greater disposable income. The government's decision to raise the exemption limit has been welcomed, but it also brings forward a key question: Is the tax system truly equitable for those just above the exemption threshold?

For individuals with incomes slightly exceeding INR 12 lakh, the new tax structure provides relief through a mechanism called marginal relief. With this provision, taxpayers who earn just over INR 12 lakh but under INR 13.5 lakh are shielded from disproportionate tax increases. While this offers a reprieve, many are still unsure about how these tax changes apply to their specific circumstances. With this, many are left wondering what marginal relief is and how it works in the new tax regime. Zero Income Tax on Salaries up to INR 13.05 Lakh, Not Just INR 12 Lakh; Here’s Why.

What is Marginal Relief?

Under the new tax regime introduced in Budget 2025, Marginal Relief is a provision aimed at preventing taxpayers from facing disproportionately high tax rates when their income exceeds the INR 12 lakh exemption threshold. The income tax exemption limit has been raised to INR 12 lakh, but for individuals earning slightly above this amount, the marginal relief ensures they are not taxed unfairly. This mechanism applies to incomes up to INR 12.75 lakh, where the additional tax burden is minimized, making the tax system more equitable. Marginal relief ensures that a small increase in income doesn’t lead to an overwhelming jump in tax liabilities, providing tax payers with a fairer approach to taxation. Income Tax on Crypto Currency: What Are New Compliances Introduced for Crypto Investors in Union Budget 2025–26? What Is New Tax Rate for Cryptocurrency Trading?

To understand how marginal relief is calculated, let's take an example. Suppose an individual has an income of INR 12.1 lakh. Without marginal relief, the tax liability would be INR 61,500. However, with marginal relief, the additional tax of INR 51,500 is eliminated, reducing the final tax payable to INR 10,000. This is calculated by comparing the tax liability without relief to the difference between the income and the INR 12 lakh threshold. In essence, the marginal relief reduces the tax burden to reflect only the excess amount above INR 12 lakh, ensuring that taxpayers with slightly higher earnings aren’t unfairly taxed.

(The above story first appeared on LatestLY on Feb 03, 2025 02:12 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).