Resident individual taxpayers in India opting for the new tax regime can access marginal relief when their income slightly exceeds ₹12 lakh [1].
This mechanism prevents a small increase in earnings from triggering a disproportionately high tax bill, ensuring that taxpayers are not penalized for earning marginally more than the rebate limit.
Under the new tax regime introduced in the Union Budget 2025-26, Section 87A of the Income Tax Act provides a rebate for resident individuals with taxable income up to ₹12,00,000 [2]. Without marginal relief, a taxpayer whose income exceeds this limit by a small amount would suddenly be liable for the full tax slab applicable to their bracket [1].
For example, an individual with a taxable income of ₹12,01,500 would normally face a full-slab tax of ₹60,225 [1]. Marginal relief ensures that this individual does not pay the full amount, limiting the additional tax liability to a more reasonable proportion of the excess income [1].
While the rebate generally applies to those earning up to ₹12 lakh [2], some reports indicate that certain taxpayers may still owe tax even if their income falls below this threshold [2]. This occurs depending on the specific nature of the income, and the application of the new rules for the 2025-26 fiscal year [2].
The provision is designed to smooth the transition between the zero-tax rebate zone and the taxable brackets. By capping the tax increase to the amount of the income excess, the government maintains the incentive for individuals to earn more without facing a net loss in take-home pay due to a sudden jump in tax obligations [1].
“Marginal relief prevents taxpayers from paying the full tax slab when their taxable income exceeds the ₹12 lakh rebate limit.”
The inclusion of marginal relief in the 2025-26 fiscal year prevents the 'cliff edge' effect, where a small raise in salary could lead to a significant drop in disposable income. By aligning the tax increase with the actual income gain, the Indian government is reducing the systemic distortion that often occurs at the boundary of tax rebate thresholds.
