By now, you might have heard that income up to ₹12 lakh is tax-free after the latest announcement in Union Budget 2025. But if you look at the new tax slabs, you’ll notice that tax rates are applicable even for income below ₹12 lakh. Why so?
See, the tax on income up to ₹12L is not zero technically. It will be calculated as per the slabs which comes at ₹60,000.
But the government says we don’t want to burden individuals with tax if their income falls under a certain threshold, ₹12L in this case. This is what they call a tax rebate.
The maximum rebate one can claim is ₹60,000 and hence the income up to ₹12L becomes tax free.
However, the slabs exist for those earning more than ₹12L, in which case the rebate is no longer given. And, the tax will be calculated as per the slab rates.
Now, what if your total income is slightly higher - say ₹12.1 lakh?
- In this case, you no longer qualify for the rebate, and if we go as per the slabs, your tax liability will come to ₹61,500.
- So, you’re earning just ₹10k over ₹12L, but paying much more than that in taxes. To avoid such a situation, you get something called marginal relief.
What is Marginal Relief?
Marginal relief ensures that the extra tax you pay does not exceed the extra income you earn above ₹12L.
So, instead of paying ₹61,500 in tax, you only pay ₹10k—matching your extra income.
Once your income earned exceeds the tax liability, marginal relief will no longer be applicable.
We also made a detailed video covering all the budget amendments.
