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Marginal Income Tax Relief Under Budget 2025: What You Need To Know

The Union Budget 2025 introduced several changes to the income tax structure, offering significant relief to taxpayers. The exemption threshold for income tax has been raised to Rs 12 lakh. This means that individuals earning up to Rs 12 lakh will no longer need to pay income tax. However, things become more interesting when you look at the revised tax slabs for salaried individuals. The limit increases to Rs 12.75 lakh due to the standard deduction of Rs 75,000. This is applicable in the new tax regime for FY 2025-26. […]

Marginal Income Tax Relief Under Budget 2025

The Union Budget 2025 introduced several changes to the income tax structure, offering significant relief to taxpayers. The exemption threshold for income tax has been raised to Rs 12 lakh. This means that individuals earning up to Rs 12 lakh will no longer need to pay income tax. However, things become more interesting when you look at the revised tax slabs for salaried individuals. The limit increases to Rs 12.75 lakh due to the standard deduction of Rs 75,000. This is applicable in the new tax regime for FY 2025-26.

What Is Marginal Income Tax Relief?

Marginal income tax relief is designed to reduce the tax burden for taxpayers whose income is slightly above the exemption threshold. If your income falls between Rs 12 lakh and Rs 12.75 lakh, you will benefit from this relief. The relief prevents individuals from paying tax on income just above Rs 12 lakh.

Read More: Budget 2025: Big Tax Relief for Middle Class, No Income Tax Up To Rs 12 Lakh

How Marginal Relief Works?

Under the new tax regime, individuals with income between Rs 12 lakh and Rs 12.75 lakh will pay less tax due to marginal relief. The tax liability is adjusted, so they don’t end up paying extra tax just because they exceeded the Rs 12 lakh limit. Essentially, marginal relief ensures that a small increase in income doesn’t result in a disproportionate increase in tax.

Let’s take a closer look at this:

• Income of Rs 12.1 Lakh: If your income is Rs 12.1 lakh, you are above the tax-exempt threshold of Rs 12 lakh but below Rs 12.75 lakh. The marginal relief will ensure that you pay tax on only the amount above Rs 12 lakh, reducing your overall liability.
• Income of Rs 12.5 Lakh: With an income of Rs 12.5 lakh, you’re still within the marginal relief range. While you will pay tax on the income above Rs 12 lakh, the marginal relief ensures that the tax liability doesn’t shoot up drastically for small increases in income.
• Income of Rs 12.75 Lakh: If your income exactly matches Rs 12.75 lakh, you will not be eligible for marginal relief anymore. The exemption limit is effectively reached, and the standard deduction of Rs 75,000 has already been accounted for. Beyond this point, the income is subject to regular taxation based on the revised tax slabs.

Key Takeaways From Revised Tax Slabs

• The tax exemption limit for individuals has been raised to Rs 12 lakh, after Budget 2025
• Salaried individuals can benefit from an enhanced threshold of Rs 12.75 lakh with the standard deduction.
• Marginal relief applies to those earning between Rs 12 lakh and Rs 12.75 lakh.
• Once income exceeds Rs 12.75 lakh, regular tax rates are applied.

The real advantage of marginal relief comes to those whose income slightly exceeds Rs 12 lakh. For example, if you earn Rs 12.1 lakh, Rs 12.5 lakh, or Rs 12.75 lakh, marginal relief ensures that your tax burden doesn’t increase drastically. This relief makes the system fairer for those in the middle-income range.

The Union Budget 2025 provides significant relief for taxpayers. This is particularly for those whose income falls just above the Rs 12 lakh threshold. By understanding how marginal relief works, individuals can plan their taxes more effectively and reduce their tax liabilities. The key is to understand the new slabs and exemptions to maximize the benefits offered under the new tax regime.

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