New Tax Regime: Understand Marginal Relief to Avoid Tax Confusion

• Marginal relief in the new tax regime helps reduce tax slightly, especially when income crosses the tax-free limit.
• A small income increase, like from Rs 13.4 lakh to Rs 13.5 lakh, can significantly impact marginal relief eligibility.
• For Rs 13.4 lakh income, after standard deduction, net income is Rs 12.65 lakh, with a tax of Rs 69,750 and marginal relief applied.
• For Rs 13.5 lakh income, after standard deduction, net income is Rs 12.75 lakh, with a tax of Rs 71,250, but marginal relief does not apply.
• Marginal relief is a safety net ensuring tax payable isn't more than the additional income earned, primarily for middle-income earners.

Key Questions Answered

How does marginal relief impact tax savings?

Marginal relief in the new tax regime helps reduce tax liability by ensuring the additional tax does not exceed the incremental income earned beyond the Rs 12 lakh threshold.

Will a small salary hike affect my tax benefits?

A small salary hike may affect your tax benefits due to changes in the Income Tax Act, 2025, effective April 1, 2026.

What are the key differences in tax regimes?

The key differences in tax regimes lie in their income slab rates and tax-free income limits.