Picture this: You're cruising with a ₹7,00,000 income, tax-free and carefree. 

But the moment you nudge past ₹7,00,000, say ₹7,01,000, suddenly you're slapped with a hefty ₹26,104 tax bill. Talk about a surprise!

Just a tiny ₹1,000 raise and poof! You're tangled up in taxes. It's a curious twist, isn't it? 

But wait! That was then, before the Finance Act of 2023 shook things up. Now, the game has changed. Wanna know how? Scroll down to read. We have it decoded for you ;).

Hey there taxpayers!

As we gear up for the 2024-25 Assessment Year (2023-24 Financial Year) – here's a neat tidbit that might take a bit of the edge off your tax payments. If your income hovers just above ₹7,00,000 and you fear you will miss out on the ₹25,000 rebate because your income is a smidge over ₹7,00,000 – fear not, you’re not alone!

Alright, for the confused heads out there, let’s consider an example wherein you have a total taxable income of ₹7,01,000 (after considering all the possible deductions).

As can be seen from the table above that, you would be paying a whopping ₹26,104.00 extra in taxes for having earned an additional income of merely ₹1,000. Kind of makes you scratch your head, doesn't it? Well, guess what, the Government saw it coming and therefore, the Government, in the Finance Act 2023, along with the reduced tax rates in the new tax regime, has provided us with a marginal relief (as Rebate u/s 87A), which was available only in the case of Surcharges until A.Y. 2023-24.

The purpose of marginal relief is to ensure that the increase in amount of tax payable due to increase in total income of an assessee beyond the prescribed limit does not exceed the amount of increase in total income.

As per the Income Tax Act, 1961, as amended by the Finance Act, 2023, “if the total income of the resident individual opting section 115BAC(1A) (which is basically the new tax regime) exceeds ₹7,00,000 and the tax payable on such income exceeds the difference between the total income and ₹7,00,000, he can claim a rebate with marginal relief to the extent of the difference between the tax payable on such total income and the amount of income by which it exceeds ₹7,00,000.”

Using the example above, we shall now calculate the tax payable using the marginal relief concept.

Ta-da! Thanks to Marginal Relief, we've turned that intimidating tax of ₹26,104 into a much more palatable ₹1,040. So, if you found yourself on the wrong side of the ₹7,00,000 income line, take a breather – the burden just got a whole lot lighter.

Now, here's the lowdown: while this tax relief is a win, keep in mind you're not entirely in the clear. There's still a bit of money tap dancing its way out of your pocket in the form of Cess. You have not just given your additional income of ₹1,000.00 to the government, but also an additional amount in the form of Cess. I know you’re still not happy, but hey, at least we are in a better place than we would be if there were no marginal relief!

Summary

The blog discusses the introduction of marginal relief in the 2024-25 Assessment Year, providing tax relief for incomes just above ₹7,00,000. Using an example of a ₹7,01,000 income, it shows how marginal relief reduces the tax liability from ₹26,104 to ₹1,040, making the burden more manageable. While taxpayers still incur additional costs through Cess, the relief eases the impact of increased taxes on marginal income above ₹7,00,000.

By,
Rukmesh Kamath
CA Finalist