Why is Marginal relief necessary for you?

Marginal relief income tax

The concept of marginal relief can be explained with the help of an example

Particulars	Amount	Amount
Total taxable income	Rs 5000000	Rs 5100000
Total tax payable as per income tax slabs	Rs 1312500	Rs 1342500
Applicability of surcharge	No	Yes
Surcharge @10%		Rs 134250
Total tax payable inclusive of surcharge	Rs 1312500	Rs 1476750
Increase in tax liability due to increase in income		Rs 164250

It is seen in the above example that the incremental tax charged from the taxpayer is greater than the income earned! The incremental income tax charged is Rs 164250 but the incremental income is only Rs 100000. To do away with this flaw in the tax provision, the government has introduced the concept of marginal relief. As the name itself signifies that it is a tax relief provided for the marginal income earned, when the taxable income exceeds surcharge threshold of Rs 50 lakhs.

Marginal relief can be computed as below:

Increase in tax excluding cess	Rs 1476750-Rs 164250=Rs 164250
Less: Income above 50 lakhs	Rs 100000
Marginal relief	Rs 64250

The subtraction of marginal relief is shown as below:

Particulars	Income of Rs 50 lakhs	Income of Rs 51 lakhs
Tax payable as per Income tax slabs	Rs 1312500		Rs 1342500
Applicabilty of surcharge	No		Yes
Surcharge @10%		Rs 134250
Less: Marginal relief		Rs 64250	Rs 70000
Total tax payable including surcharge	Rs 1312500		Rs 1412500
Health and education cess	Rs 39375		Rs 42375
Total tax payable including surcharge and cess	Rs 1351875		Rs 1454875

Know more about surcharge