
Budget 2025: Finance Minister Nirmala Sitharaman's announcement of revised tax slabs under the New Tax Regime has sparked discussions on social media regarding the possibility of taxpayers with salaries slightly above Rs 12 lakh having to pay Rs 61,500 if no relief is provided. Under the new regulations, individuals earning up to Rs 12 lakh will be exempt from income tax.
FM Sitharaman announced that the income tax exemption threshold has been raised to Rs 12 lakh, with salaried individuals benefitting from a standard deduction of Rs 75,000, resulting in a tax-free limit of Rs 12.75 lakh for the FY 2025-26. These changes were made possible through the introduction of revised tax slabs and an increased rebate of Rs 60,000 under section 87A.
So, how much do you actually pay if your salary is above Rs 12 lakh?
Marginal relief
Following the Budget 2025, Section 87A of the Income Tax Act now offers marginal relief for taxpayers under the new tax regime. This relief is intended to help taxpayers whose income slightly exceeds the specified threshold, resulting in a tax liability that is higher than the marginal increase in income. The marginal relief ensures that the total amount of income tax paid does not exceed the amount that would be payable on a total income of Rs 12 lakh by more than the excess income above Rs 12 lakh.
CA Suresh Surana said: "An individual can claim marginal tax relief if their taxable income is more than Rs 12 lakh. The marginal relief can be claimed even after a taxpayer claims all the relevant deductions available under the new tax regime."
Tax calculations
Consider a scenario where a salaried taxpayer has a gross taxable income of Rs 14 lakh. They are entitled to a standard deduction of Rs 75,000 under the new tax regime, along with a deduction under Section 80CCD (2) for NPS contribution by the employer of Rs 1 lakh.
After claiming a total of Rs 1.75 lakh in deductions, the taxpayer's net taxable income comes to Rs 12,25,000. Since this amount exceeds Rs 25,000, they are not eligible for a tax rebate under Section 87A. Therefore, they must pay tax on the income of Rs 12,25,000, resulting in a total tax liability of Rs 63,750 (excluding cess).
However, due to marginal relief, the taxpayer will only pay a tax of Rs 25,000 instead of Rs 63,750. After adding cess at 4%, their final tax liability will come to Rs 26,000 (including cess).
Therefore, taxpayers with taxable incomes of Rs 12,10,000 can expect to save approximately Rs 51,500 by paying a tax amounting to Rs 10,000. This savings is a result of the marginal relief provision, which diminishes as taxable income rises.
The tax liability on Rs 12.1 lakh income without marginal relief will be ₹61,500. And, it will be calculated as follows:
Income Range | Tax rate | Tax Amount |
Rs 0-4 lakh | 0 | Rs 0 |
Rs 4-8 lakh | 5% | Rs 20,000 |
Rs 8-12 lakh | 10% | Rs 40,000 |
Rs 12-12.1 lakh | 15% | Rs 1500 |
Total tax | Rs 61,500 |
Salaries above Rs 12 lakh but...
Marginal relief is offered to resident individuals earning between Rs 12 lakh and Rs 12.75 lakh. However, once an individual's income exceeds Rs 12.75 lakh, they will no longer be eligible for marginal relief and will be subjected to the regular tax rates as per the CBDT. The income tax payable at the income levels of Rs 12.1 lakh, Rs 12.5 lakh, and Rs 12.7 lakh will be calculated with and without the benefit of marginal relief, as explained by the CBDT. It is important to note that the marginal relief provision does not apply to income exceeding Rs 12.75 lakh.
Income (Rs) | Tax payable without marginal relief (Rs) | Tax payable with marginal relief (Rs) |
12.1 lakh | 61,500 | 10,000 |
12.5 lakh | 67,500 | 50,000 |
12.7 lakh | 70,500 | 70,000 |
12.75 lakh | 71,250 | 71,250 [No marginal relief] |
Source: CBDT
Tax slabs proposed in Budget 2025
New tax regime rates and slabs in FY 2025-26
Taxable income slab (Rs) Tax rates under new regime
Up to 4,00,000 Nil
From 4,00,001 to 8,00,000 5%
From 8,00,001 to 12,00,000 10%
From 12,00,001 to 16,00,000 15%
From 16,00,001 to 20,00,000 20%
From 20,00,001 to 24,00,000 25%
Above 24,00,000 30%
Taxpayers who cannot avail of marginal relief
Marginal relief benefits are only applicable to certain categories of taxpayers. Under the new tax regime outlined in Section 115BAC of the Income Tax Act, marginal relief is specifically available to resident individuals with income slightly exceeding Rs 12 lakh. It is important to note that taxpayers who are not resident individuals, such as non-residents and HUFs, are not entitled to receive marginal relief benefits.