All About New Amendment Marginal Relief for Individuals Earning Income in Excess of 7 Lacs

The government has announced Marginal Relief for small taxpayer earning income above 7 lakh. The Marginal Relief will be available only to the people who are opting to pay tak under new tax regime. Let us look at the rate under new tax regime to understand it better.

In the budget 2023, the tax structure in the new tax regime was made more attractive by reducing the number of slabs to five and increasing the tax exemption limit to 3 lakh. The new tax rates are:

0-3 lakh -    Nil               

3-6 lakh -    5%

6-9 lakh -    10%

9-12 lakh -  15%

12-15 lakh-  20%

Above 15 lakh- 30%

Moreover in this budget there is no tax for those earning upto 7 lakhs. As rebate u/s 87A- Income rebate limit increased to Rs 7 lakh from Rs 5 lakh in new tax regime. 

With the increase in rebate to 7lakh, there may arise a situation where the person earning more than 7 lakh has to pay higher tax than the additional income earned. The marginal relief will benefit the person who is earning more than 7 lakh. Let's look at it with an example.

Mr A is earning 700000. He is opted to pay tax under new regime 115BAC. Since his income is less than 7 lakh, he do not need to pay any tax. 

Now, consider Mr B, who earns 705000. Mr B has also opt to pay tax under new tax regime. Since his income is above 7 lakh, he could not avail rebate u/s 87A. Hence, he has to pay tax of 25,500 as per below calculation. 

Tax on income 0-3 lakh = 0

Tax on income 3-6 lakh = 15,000 (5%*300000)

Tax on income 6-7.05 lakh = 10,500 (10%*105000)

Total Tax = 25,500

So, Mr B's post tax income is 679500.

In this case Mr B has earned additional income of 5000, but due to this additional 5000, he has to pay tax of 25,500. Therefore,  Marginal Relief is introduced  for 115BAC, which provides the upper limit of tax payment in such cases. The upper limit is the additional income earned. In this case, the additional income is 5000 (Income earned above 700000). Marginal Relief will be 25,500-5,000 = 20,500. So now, after claiming the rebate, the tax payable will be 5000.

Now, let's consider a different example to get more clarity,

Mr C, who earns 730000. Mr C has also opt to pay tax under new tax regime. Since his income is above 7 lakh, he could not avail rebate u/s 87A. Hence, he has to pay tax of 28,000 as per below calculation. 

Tax on income 0-3 lakh = 0

Tax on income 3-6 lakh = 15,000 (5%*300000)

Tax on income 6-7.3 lakh = 13,000 (10%*130000)

Total Tax = 28,000

In this case Mr B has earned additional income of 30,000 (Income above 7 lakh). So, the upper limit of tax is the additional income earned i.e 30,000, as per the above calculation he has to pay tax of 28,000 which is less than 30,000. Therefore, Marginal Relief will be 0. 

The above tax rate and marginal relief will be effective from the financial year 2023-24. Let's us know if you have any further queries @ 80728 61639