Budget 2025 has introduced a tax structure that has left many questioning how a minor increase in income can lead to a significant tax liability. Entrepreneur Pranjal Kamra highlighted this issue on X, pointing out how earning just Rs 1,000 more can result in a steep tax bill.
Kamra’s post read:
How much tax do I have to pay? Calculate now
“New Tax Slab Truth! Scenario 1: If you earn Rs 12.75 lakh, tax to be paid—0. Scenario 2: If you earn Rs 12.76 lakh (just 1K more), tax to be paid—Rs 62,000.”
The reason for this lies in the Section 87A rebate. As per the revised provisions, resident individuals with a net taxable income of up to Rs 12 lakh are eligible for a rebate that brings their tax liability to zero. Salaried individuals benefiting from a standard deduction of Rs 75,000 can have a gross income of up to Rs 12.75 lakh and still pay no tax.
However, once the income crosses Rs 12.75 lakh, even by a single rupee, the rebate is no longer applicable, the entrepreneur said. This results in the entire taxable income being subject to the standard slab rates, which can lead to a sudden tax liability of Rs 62,000 for those earning Rs 12.76 lakh.
Kamra adds, “The relief for income up to Rs 12 lakh is a rebate, not an exemption. You still have to file your ITR to claim it, and it’s not applicable on capital gains. So, if you have Rs 12 lakh in LTCG and no salary, you don’t get the rebate.”
To address this, the Income Tax Department provides marginal relief, designed to prevent a disproportionate tax burden for individuals who marginally exceed the threshold. For instance:
However, marginal relief applies only up to a certain point. At Rs 12.75 lakh, it is no longer available, meaning that earning Rs 12.76 lakh results in paying the full tax amount of Rs 62,000 without any relief.