Finance Minister Nirmala Sitharaman announced major changes in the new regimen of income tax in Budget 2025. In particular, income up to Rs 12 lakh was tax-free, giving relief for middle class. After this announcement, a discussion started among the people on social media that the tax burden will suddenly increase by crossing the limit of 12 lakhs. However, taxpayers were relieved after the budget document and finance bill was released.
This is due to marginal relief, which gives benefits to those whose income is slightly more than Rs 12 lakh.
Marginal Relief: How does it work on more than 1.2 million income?
If your income is slightly more than 12 lakhs, then marginal relief will be benefited. That is, the tax amount will not be more than your extra income. Due to this, those who earn a little more than income of Rs 12 lakh will not be additional tax.
Note:
- Marginal Relief is not new, it was also available earlier in the new regimen of income tax.
- This will be given to the same taxpayers who choose the new tax regime.
- This is only applicable to salaryid and individual residents.
Section 87A: Who will get tax benefit?
Under section 87A, tax exemption has been given on income up to Rs 12 lakh. But not everyone will get this benefit.
Who can take advantage?
Only individual taxpayers, who are residents of India.
Taxpayers adopting new tax regimen.
Whose taxable income is up to Rs 12 lakh.
Who cannot take advantage?
Non-resident Indians (NRI).
Companies, firm or huff.
This is not applicable to income (lottery, capital gains) with special tax rate.
Impact of marginal relief in budget 2025: Understand from example
The data below can understand how tax will be taxed on more than 12 lakh income and where will marginal relief be available.
| Taxable Income (₹) | Tax (₹) (Relief under Section 87A) | Will marginal relieve? |
|---|---|---|
| 12,00,000 | 0 (Relief of Rs 60,000) | No |
| 12,10,000 | 10,000 | Yes |
| 12,70,000 | 70,000 | Yes |
| 12,75,000 | 71,250 | No |
What does it mean:
- If the income is 12.10 lakh, then only Rs 10,000 will be taxed, while it should have been higher as per normal tax rate.
- The marginal relief will not be applicable on income of Rs 12.75 lakh and will be charged full tax.
Extra Benefit for Salarid Individuals
If you are a salary taxpayer and choose a new tax regimen, you will get a standard deduction of Rs 75,000.
How will you get benefit?
If your total salary is Rs 12.75 lakh, then after standard deduction, taxable income will be reduced to Rs 12 lakh and you will be tax free under section 87A.
Example:
Income: ₹ 12.85 lakh – ₹ 75,000 (Standard deduction) = Taxable Income: ₹ 12.10 Lakh (Marginal Relief)
Income: ₹ 13.45 lakh – ₹ 75,000 = Taxable Income: ₹ 12.70 Lakh (Marginal Relief)
Will section 87A be benefited on capital gains or lottery income?
No! Section 87A applies only to regular income.
Who will not apply to?
- Long-term/short-term capital gains of equity share or mutual funds.
- Capital gains from real estate.
- Lottery or betting income.
