Marginal Relief When Income Is Slightly Above Rs 12 Lakh (FY 2025-26)
Income up to Rs. 12,00,000 is tax-free in the new regime for FY 2025-26 because of the section 87A rebate. Without a safeguard, earning even Rs. 10,000 more would trigger the full slab tax of Rs. 61,500 - more than the extra income itself. Marginal relief fixes exactly this cliff.
How marginal relief is calculated
- Step 1: compute normal slab tax on total taxable income (new-regime slabs: nil to Rs. 4 lakh, 5% on Rs. 4-8 lakh, 10% on Rs. 8-12 lakh, 15% on Rs. 12-16 lakh).
- Step 2: compute the excess of taxable income over Rs. 12,00,000.
- Step 3: tax payable is the lower of the two; the difference is the marginal relief. Health and education cess of 4% applies on the final figure.
- The relief is automatic - the ITR utility and employer TDS calculators apply it without any separate claim.
Worked examples at different incomes
| Taxable income | Normal slab tax | Excess over Rs. 12 lakh | Tax after marginal relief |
|---|---|---|---|
| Rs. 12,00,000 | Rs. 60,000 (rebate makes it nil) | - | Nil |
| Rs. 12,10,000 | Rs. 61,500 | Rs. 10,000 | Rs. 10,000 |
| Rs. 12,50,000 | Rs. 67,500 | Rs. 50,000 | Rs. 50,000 |
| Rs. 12,70,588 | Rs. 70,588 | Rs. 70,588 | Rs. 70,588 (breakeven) |
| Rs. 13,00,000 | Rs. 75,000 | Rs. 1,00,000 | Rs. 75,000 (normal tax, no relief) |
Gross salary view: what salaried taxpayers actually pay
Because salaried taxpayers get the Rs. 75,000 standard deduction, the marginal-relief band in gross-salary terms runs from Rs. 12,75,001 to about Rs. 13,45,588. The same computation looks like this:
| Gross salary | Taxable income (after Rs. 75,000 standard deduction) | Tax before cess | Position |
|---|---|---|---|
| Rs. 12,75,000 | Rs. 12,00,000 | Nil | 87A rebate covers full tax |
| Rs. 13,00,000 | Rs. 12,25,000 | Rs. 25,000 | Marginal relief (slab tax was Rs. 63,750) |
| Rs. 13,25,000 | Rs. 12,50,000 | Rs. 50,000 | Marginal relief (slab tax was Rs. 67,500) |
| Rs. 13,45,588 | Rs. 12,70,588 | Rs. 70,588 | Breakeven point |
| Rs. 14,00,000 | Rs. 13,25,000 | Rs. 78,750 | Normal slab tax, no relief |
Four situations explained
Bonus pushes income to Rs. 12.1 lakh
Slab tax would be Rs. 61,500. Marginal relief of Rs. 51,500 caps the tax at Rs. 10,000, plus Rs. 400 cess = Rs. 10,400. The extra Rs. 10,000 of income costs Rs. 10,400, so a tiny raise just past Rs. 12 lakh barely helps in hand.
Salary Rs. 12.75 lakh
Standard deduction of Rs. 75,000 brings taxable income to exactly Rs. 12,00,000. The Rs. 60,000 rebate under section 87A makes tax nil - marginal relief is not needed at all. This is why "Rs. 12.75 lakh tax-free" headlines are accurate for salaried taxpayers.
Income Rs. 13.5 lakh
Slab tax is Rs. 82,500 while the excess over Rs. 12 lakh is Rs. 1,50,000. Normal tax is lower, so no marginal relief applies; tax is Rs. 82,500 plus Rs. 3,300 cess = Rs. 85,800.
Freelancer with taxable income Rs. 12.4 lakh
A consultant on presumptive taxation has taxable income of Rs. 12,40,000 (no standard deduction on professional income). Slab tax is Rs. 66,000, but the excess over Rs. 12 lakh is only Rs. 40,000. Marginal relief of Rs. 26,000 caps the tax at Rs. 40,000, plus Rs. 1,600 cess = Rs. 41,600.
How to check your marginal relief on the incometax.gov.in portal
- Log in at incometax.gov.in and start your return via e-File > Income Tax Returns > File Income Tax Return, choosing AY 2026-27 and the new regime (the default).
- Fill in or confirm the pre-filled salary, interest and other income. Cross-check with Form 16, AIS and Form 26AS so nothing is missed near the threshold.
- Open the tax computation summary shown before submission. If taxable income is between Rs. 12,00,001 and about Rs. 12,70,588, the utility automatically restricts the tax to the excess over Rs. 12 lakh - you will see tax far below the normal slab figure.
- Verify that the final tax equals (taxable income - Rs. 12,00,000) plus 4% cess. If it shows full slab tax instead, recheck whether some income is special-rate (capital gains) or whether you accidentally selected the old regime.
- If you want to test scenarios first, use the department's tax calculator on the portal (Quick Links) or our income tax calculator before filing.
- Submit and e-verify within 30 days so the return is processed with the relief intact.
Points to remember
- Marginal relief applies only in the new regime and only to resident individuals eligible for the 87A rebate; see our section 87A guide.
- Special-rate income such as STCG under section 111A is taxed separately and does not get this relief.
- The breakeven of about Rs. 12,70,588 is for taxable income; salaried taxpayers can add the Rs. 75,000 standard deduction on top when thinking in gross-salary terms.
- If you are near the threshold, eligible new-regime deductions like employer NPS under section 80CCD(2) can pull taxable income back to Rs. 12 lakh and save the entire tax.
- Estimate both regimes with the income tax calculator before filing.
Common mistakes to avoid
- Refusing a raise or bonus to "stay under Rs. 12 lakh". Because of marginal relief you never pay more tax than the extra income itself - extra earnings are never a net loss, they are just heavily taxed in the Rs. 12-12.7 lakh band.
- Forgetting bank interest and other small incomes. Rs. 15,000 of unreported FD interest can move you from zero tax to the marginal-relief band - and the CPC will spot it from AIS.
- Expecting relief on capital gains. STCG/LTCG are taxed at special rates; the Rs. 12 lakh logic applies only to slab-rate income.
- Confusing taxable income with gross salary. The Rs. 12,70,588 breakeven is after the standard deduction; in gross-salary terms it is about Rs. 13,45,588.
- Applying the same logic to the old regime. There is no marginal relief at the old regime's Rs. 5 lakh rebate threshold - crossing it costs the full Rs. 12,500 rebate at once.
- Missing the 80CCD(2) opportunity. An employer NPS contribution is one of the few deductions allowed in the new regime and can bring taxable income back to Rs. 12 lakh, converting a Rs. 40,000 tax bill into zero.
Documents to keep ready
- Form 16 and final salary slips showing bonus and arrears.
- AIS and Form 26AS for interest and other incomes that may push you past Rs. 12 lakh.
- Proof of employer NPS contribution, if any.
- Capital gains statements, since special-rate gains change the computation.
Frequently asked questions
What is marginal relief for income above Rs 12 lakh?
Under the new regime for FY 2025-26, if taxable income slightly exceeds Rs. 12 lakh, marginal relief caps the tax payable at the amount of income above Rs. 12 lakh. On income of Rs. 12,10,000 the tax is limited to Rs. 10,000 plus 4% cess, instead of the slab tax of Rs. 61,500.
Up to what income does marginal relief apply in FY 2025-26?
Up to taxable income of about Rs. 12,70,588. At that point the excess over Rs. 12 lakh (Rs. 70,588) equals the normal slab tax; beyond it, normal slab tax is lower so the relief no longer helps.
Do salaried people earning Rs 12.75 lakh pay any tax in FY 2025-26?
Generally no. Salary of Rs. 12,75,000 minus the Rs. 75,000 standard deduction gives taxable income of Rs. 12,00,000, which is fully covered by the section 87A rebate of Rs. 60,000 - marginal relief is not even needed.
Is marginal relief available in the old tax regime?
Not at the Rs. 5 lakh rebate threshold. In the old regime, crossing Rs. 5,00,000 means losing the entire Rs. 12,500 rebate with no cushion. Marginal relief in the old regime exists only for surcharge at high income levels.
Do I need to claim marginal relief separately in my ITR?
No. The ITR utility applies it automatically once income details are entered. There is no form or separate claim - just confirm the capped tax figure in the computation summary before submitting.
Does marginal relief apply to capital gains taxed at special rates?
No. It works only on slab-rate income of resident individuals in the new regime. Gains under sections 111A and 112A are taxed separately at their own rates, and neither the 87A rebate nor marginal relief reduces that tax.
Get expert-assisted filing
All India ITR can compute your exact marginal relief, check whether a small deduction can make your entire tax zero, and pick the better regime before filing.
Related current ITR guides
More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
Investors and traders: F&O and intraday tax · ESOP and RSU tax · Share buyback tax · Foreign income and Schedule FA · Gift tax (56(2)(x)) · HUF taxation
Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- PIB, Ministry of Finance: Union Budget 2025-26 - new regime slabs and Rs 12 lakh nil-tax announcement
- Income Tax Department: Tax slabs and returns applicable to salaried individuals
This guide is for general understanding. Figures shown exclude surcharge and assume only slab-rate income; returns with capital gains or other special-rate income need a separate computation.
